The US economy added just 266,000 jobs last month, April’s hotly-anticipated nonfarm payrolls report showed.
It was an astounding miss. The market expected a blockbuster. Indeed, a headline print near the 1 million mark was seen as a foregone conclusion.
The range of estimates was 700,000 to 2.1 million from 77 economists. The figure, below, shows the scope of the miss.
Worse, March’s scorcher was revised sharply lower, from a gain of 916,000 to an addition of 777,000.
Private payrolls rose just 218,000, a woeful miss to the 933,000 print the market expected, and nowhere near the ADP print from earlier this week.
Gains were wholly attributable to leisure and hospitality, which added 331,000 positions (figure below) thanks to the relaxation of pandemic-related restrictions across the country. Of that total, more than half of the additions were in food services and drinking places (+187,000).
With April’s gains, leisure and hospitality has added 5.4 million jobs over the year, but, as the BLS lamented Friday, “employment in the industry is down by 2.8 million, or 16.8%” since the onset of the pandemic 14 months ago.
In the transportation and warehousing category, employment in couriers and messengers dropped by 77,000. Manufacturing lost 18,000 jobs versus consensus of a 50,000-job gain. Retail shed 15,000 positions, healthcare lost 4,000 and construction was flat.
The unemployment rate rose to 6.1%, versus expectations for a decline to 5.8%. No economist predicted a 6%+ print.
Average hourly earnings posted a large upside surprise, jumping 0.7% MoM and 0.3% YoY. The market was looking for unchanged and a 0.4% decline, respectively. That potentially throws cold water on the services sector recovery narrative even considering the addition of 300,000+ jobs in leisure and hospitality. “The point could be made that the higher-than-expected [AHE] read is a negative given computationally it suggests fewer lower-wage workers were brought back on line as slack in the most adversely affected portion of the labor market persists,” BMO’s Ian Lyngen remarked.
It’s difficult to overstate the magnitude of this miss. While the market ramifications will be complicated by the necessity of incorporating the Fed’s decision calculus (which is just a euphemism for saying that traders need to decide whether this means achievement of the “substantial further progress” threshold might be pushed back a bit), the headline print is a huge letdown for those who expected April’s NFP would mark the onset of what many insist will be a string of spectacularly robust economic releases.
For Treasurys, this is clearly bullish. That could bode well for tech and secular growth shares. For equities more broadly, market participants need to weigh a fresh excuse for the Fed to remain dovish against evidence that the US recovery may not be as robust as everyone assumed. Expectations for the timing of the first Fed hike were pushed back to June 2023 (from March 2023).
Of course, one month doesn’t make a trend, but it’s fair to call this a setback.
The employers’ lament “We can’t find employees” might have to be replaced by “We aren’t willing to pay enough to attract employees.”
might have?
TBH, it’s almost always the case. I’m old enough to remember jokes being made about peasants and the weather. If it was cold, it was going to freeze their crops. Hot? Too hot, it was going to burn them. Rainy? Too wet, it was going to rotten them. And dry was the worst… Basically, the weather was never to their tastes.
At some point, you learn that people just enjoy complaining about how difficult their jobs are, so that they can get sympathy. Discount everything anyone says, ever. Except rationalists.We may not always succeed but we try hard for intellectual honesty… 🙂
Some employers will continue to replace service jobs with screens. It was already happening prior to covid.
This is probably good news for markets as it suggests the economy is not over heating as much as was thought.