April Employment Report Misses Badly

The April Employment Report badly missed expectations of 1.0 million new jobs with just 266,000 jobs created, while the March report was revised lower from 916,000 jobs to 770,000. With the latest numbers, around 8.2 million people remain unemployed from the pandemic. The problem now, with the disappointing April numbers, is estimating how quickly those people get reintroduced into the workforce? If April is just a one-off and strong job growth returns through 2021 we’re looking at December, at the earliest, before all those jobs are recovered. That could provide a logical starting point for QE tapering, but a lot has to go right between now and then for that to happen. As it stands, the report brings more questions about Fed timing than answers.  Meanwhile, the unemployment rate ticked up one-tenth to 6.1% versus the 5.8% expectation. That’s the first increase since April of last year when the impact of the pandemic was first being felt. However, the Fed is more likely to focus on the underemployment rate, a broader measure of unemployment and here there was better news as the rate dipped to 10.4% from 10.7% in March. A big drop in part-time workers led to the three-tenths drop in the rate.  It bottomed at 6.9% in December 2019 and the Fed will want to see it get close to that before declaring mission accomplished. Also, the labor force participation rate (labor force/civilian population) ticked up two-tenths to 61.7% from 61.5% the prior month. That was a tenth better than expectations.   It was 63.3% just prior to the pandemic. The underemployment rate and labor force participation numbers will need to return to near pre-pandemic levels, indicating something close to full employment before the Fed considers tightening monetary policy, and that remains quite a ways off.


More on the Jobs Report

  • For the month, 266,000 jobs were created  versus an expectation of 1.0 million. Private payrolls added 218,000 jobs versus 708,000 in March and expectations of 933,000. In addition to the headline miss, the prior two months were adjusted lower by 78,000 jobs.  The services sector as a whole gained 234,000 jobs with leisure/hospitality leading the way with 331,000 new jobs as good news on vaccinations and virus case counts led to further re-openings. Retail Trade (-15k), Transportation (-74k), and Temporary Help (-111k) all experienced lost jobs which is odd considering the re-opening story. Seasonal adjustments are no doubt clouding the picture like they did at year-end.  Temporary Help services had posted five straight months of solid gains until April. Goods-producing jobs posted a loss of 16,000 positions, the second month out of three to post losses. Construction jobs were flat and manufacturing lost 18,000 positions. Those figures just seem off when considering the red-hot residential housing numbers and the ISM Manufacturing numbers. That points even more to seasonal adjustment issues.


  • The unemployment rate rose one-tenth to 6.1% from 6.0% in March and 5.8% expected. It’s the first increase in the rate since April of last year when the pandemic began hitting the labor market. The good news here is the labor force grew by 430,000 people with 328,000 finding jobs (per the Household Survey) and the other 102,000 counted as unemployed leading to the uptick in the unemployment rate. The nice pop in the labor force will be cheered by the Fed after the losses in the past year. That uptick in the labor force led to the labor force participation rate (labor force/civilian population) ticking up two-tenths to 61.7%. It was 63.3% pre-pandemic and the Fed will want to see it approach that before tightening policy.


  • Finally, the underemployment rate which is a broader measure of unemployment as it adds those working part-time but wanting full-time work and those marginally attached to the labor force (out of work and not having looked for a job in the preceding four weeks) dipped from 10.7% to 10.4%. It was as low as 6.9% prior to the pandemic. A big 583,000 drop in part-time workers led to the three-tenths drop in the rate. Getting people back in the labor force, and getting the 8.2 million still unemployed a paycheck are key policy goals for the Fed in deciding when we are back to full employment, and as you can see we’re still a long way off.

Average Hourly Earnings (YoY) Illustrates K-Shaped Recovery

We mentioned on Wednesday that the Fed will be keen to watch for accelerating wage growth to signal coming demand-side inflationary forces. The trouble is the wage numbers from the jobs report are bound to be noisy enough to cloud those signals. As the graph illustrates, the vast majority of job losers in the lockouts were lower-wage positions leaving higher wage/salaried positions that could work from home and/or had less person-to-person contact. That led to the spike you see in April of last year.  As the recovery and re-openings have broadened, lower wage workers are returning and that is creating the drop you see in the latest months. It will take some time to sort through the volatility caused by the K-shaped recovery, but ultimately the Fed will want this metric to move towards 3.5% – 4% at full employment before getting concerned about inflation.


Source: Bloomberg


While Treasury Debt Climbs, Interest on Debt Declines

We came across this graph yesterday from Citigroup and it reminded us that whenever the discussion turns to the national debt the outstanding amount is just half of the equation. Consideration also has to be paid to the average rate the debt is costing us. The graph illustrates that while Treasury debt levels are at an all-time high of $21.4 trillion, the average rate on that debt is at an all-time low of 1.50%. A quick calculation for debt service comes to $321 billion per year, or about 1.5% of GDP. It topped 3% or double the current rate back in the late 80’s/early 90’s. So, while the outstanding debt level is certainly eye-popping, the actual debt service is not even close to levels 30 years ago. A final thought on this is that it certainly provides ongoing incentive for the powers-that-be to work hard to keep those interest rates low, low, low.




Market Rates

Treasury Curve Today Chg Last Wk. LIBOR Rates Today Chg Last Wk. FF/Prime Rate Swap Rates Rate
3 Month 0.01% Unchanged 1 Mo LIBOR 0.11% Unchanged FF Target Rate 0.00%-0.25% 3 Year 0.453%
6 Month 0.03% Unchanged 3 Mo LIBOR 0.17% -0.01% Prime Rate 3.25% 5 Year 0.898%
2 Year 0.14% -0.02% 6 Mo LIBOR 0.20% Unchanged IOER 0.10% 10 Year 1.555%
10 Year 1.56% -0.07% 12 Mo LIBOR 0.28% Unchanged SOFR 0.01%


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Published: 05/07/21 Author: Thomas R. Fitzgerald