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Employment Rebounds, Unemployment Plummets, Wages Stagnate

RFP
Payroll employment rose 164,000 in April; that’s less than expected but follows an upward revision to the March data. The net suggests that unusually harsh spring weather tempered but did not derail the underlying trend in employment. We added about 200,000 jobs on average per month since the start of this year.

The construction sector rebounded in April as snow in the South melted; the number of construction jobs contracted in March. Weather delays took a greater toll on residential than commercial real estate activity. In response, employment for specialty contractors in the residential sector was weaker than in nonresidential. Building material and gardening stores were hit hardest while landscaping projects were delayed. Look for a bigger gain in specialty contractors for residential construction in May, given the push to make repairs and remodel homes that had been left to deteriorate in the wake of the financial crisis.

The largest payroll gains for the month were in professional services, manufacturing and health care. The increase in health care jobs reflects increased demand for services from an aging population as well as a rise in baby boomers retiring from health care professions. Shortages of experienced nurses are becoming acute.

The expanded number of hires in professional services likely reflects the broader improvement in the economy and recent tax cuts. The tax code is still much more complicated than many had hoped, which is providing a boost for tax consulting services.

Manufacturing gains were concentrated in machinery and scattered across other categories. Heavy truck manufacturing picked up but was offset by declines in other vehicle production. Car production is weakening as vehicle companies chase the demand for SUVs and light trucks. One caution there is the recent spurt in prices at the gas pump, which could slow the shift toward larger vehicles. The silver lining is improved fuel economy. SUVs and light trucks are much more fuel-efficient than they were the last time we saw a spike in gas prices in 2013-2014.

Weakness in transportation and warehousing was a disappointment. Trucking employment actually contracted by more than 5,000 jobs during April. Trucking firms are complaining that experienced baby boomers are retiring with few younger, trained drivers to replace them. We did see increases in warehousing and courier employment, which are also benefiting from the move to online in retail.

Retail and government employment contracted. Teachers at the state and local levels experienced the largest losses; that may be partially attributed to strikes by teachers in states where teacher pay is significantly below average.

Average hourly earnings were weaker than we expected, rising only 2.6% from one year ago. Downward revisions now show weaker wage growth over the last two months. Manufacturing suffered one of the largest slowdowns in wage growth as gains shifted to lower paying jobs in machinery as opposed to vehicles. Wages also decelerated sharply in nondurable goods, which include food production, a sector hit by retaliatory tariffs from China. On a more positive note, construction wages are finally accelerating.

The unemployment rate dipped to 3.9% in April, a rate we have not sent since the boom of the 1990s that came to an end in early 2001. The participation rate slipped but losses were still well within the range of normal error in one month and not enough to worry. The largest decline in unemployment occurred among teens, who had been largely sidelined by the financial crisis and the years that followed. All of that improvement was due to a drop in the unemployment rate among young women. The unemployment rate for teenage men continued to rise. The unemployment rate for all workers with less than a high school diploma actually jumped but for a good reason. That’s one of the few groups who are increasing their participation in the labor force; they finally see opportunity to look for jobs after years of being discouraged.

Bottom Line
Payroll employment and the unemployment rates suggest that the labor market continues to show improvement despite setbacks from harsh spring weather. It looks like the composition of job gains included a shift to lower-paying manufacturing jobs; that explains part but not all of the weakness. Wage gains have been in a rut since February; we’d like to see more acceleration.

About the author
Diane Swonk Diane Swonk
Chief economist
Twitter: @DianeSwonk


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