Last weekend we first warned our readers that Goldman just pulled the rug from under today's NFP number, by slashing their NFP forecast to 125,000, which was among the lowest (LaVorgna's 175,000 call was only 50% off... as usual). At the end even Goldman was high. Here is Hatzius' post-mortem.
BOTTOM LINE: Nonfarm payrolls increased less than expected, though earlier months were revised up. We suspect a negative weather “payback” explains part of the deceleration in job growth. The unemployment rate declined, but this was due to another drop in labor force participation; household survey measure of employment falls for second month. Overall report consistent with weak growth: our Current Activity Indicator (CAI) is 1.8% for April, down from 2.5% in March.
Unemployment rate 0 (5, 0) with one point downward adjustment due to weak household survey employment
Key Numbers:
Nonfarm payrolls +115k (mom) for April vs GS +125k, median forecast +160k.
Unemployment rate 8.1% for April vs GS 8.2%, median forecast 8.2%.
Average hourly earnings Flat (mom) for April vs GS +0.1%, median forecast +0.2%.
MAIN POINTS:
1. Nonfarm payroll employment increased by 115k in April, less than generally expected. However, growth in earlier months was revised up by a net 53k. Employment growth was mixed across industries. On the one hand, retail employment growth rebounded to +29k from -21k in March, and business services employment growth accelerated to +62k from +37k. On the other hand, employment growth in manufacturing (+16k after +41k), construction (-2k after -3k), and leisure/hospitality (+12k after +52k) was relatively soft last month. The average workweek was unchanged at 34.5 hours (as expected); average hourly earnings were unchanged month-over-month and up 1.8% year-over-year (below consensus expectations).
2. The unemployment rate declined one tenth to 8.1% (8.098% unrounded), in contrast to consensus expectations for an unchanged reading. The decline in the unemployment rate reflected another drop in the labor force participation rate to 63.6% from 63.8% previously (the level of the labor force declined by 342k). The measure of employment from the household survey fell by 169k (or 495k adjusted to the definitions of the payroll survey) following a decline of 31k in March. Broader measures of labor underutilization were mostly unchanged. For instance, the “U6” measure was flat at 14.5%.
3. We expect that a “payback” from warm winter weather partly explains the deceleration in employment growth in April. This would be consistent with the industry mix of job gains, for example, with weakness in some weather-sensitive sectors such as construction and leisure/hospitality. Our best guess at this point would be that the weather payback effect in April was a little larger than in March, and may have subtracted 20-40k from nonfarm payroll growth (we emphasize that these are preliminary estimates). This would be a little below our estimates prior to today’s report, and it would imply that underlying job market weakness explains a little more of the below-consensus payroll gain than we had expected.
4. If there was one consistent message in today’s report it was weak growth. Both nonfarm payrolls and the household survey’s measure of employment point to a loss of momentum. Indeed, incorporating data from the employment report, the first estimate of our Current Activity Indicator (CAI) for April is 1.8%, down from 2.5% in March.