Key Data

Payrolls: +211,000; Revisions: -6,000; Leisure and Hospitality: +55,000; Unemployment Rate: 4.4% (down from 4.5%); Participation Rate: -0.1 percentage point; Hourly Wages: +0.3%

In a Nutshell

“Despite all their grumbling about the availability of workers, companies are still finding plenty of people to hire.”

What It Means

Business owners are always complaining that they cannot find enough qualified workers. Really? Then how come firms continue to hire like crazy? Job gains in April were above expectations and more than likely higher than is sustainable. So far this year, payroll gains have averaged 185,000 per month. Over the past year, only about 100,000 new workers entered the labor force each month, so this hiring pace is further straining the labor market. The April job gains were widespread, as manufacturing, construction, government and just about every service sector except information services added people. The key health care segment is expanding, at least for a while, as is food services. Restaurants may be singing the blues and chains may be closing, but a lot of new ones are opening and they are hiring.

The strong payroll increase, not surprisingly, led to another decline in the unemployment rate. It now stands at the lowest level since May 2007. However, the labor force was largely flat and the participation rate eased. Those used to be reasons to say the drop should be discounted, but times have changed. The “real” or what I call the “really stupid” unemployment rate fell to its lowest level since November 2007. Basically, all measures point to a tight labor market. That said, wage growth was decent but nothing spectacular. All those unqualified workers who are being hired look like they are coming in at lower wages.

Markets and Fed Policy Implications

This was a surprisingly good report. The gains were spread across the economy with only a couple of anomalies, which occur every month. One reason we may be seeing strong increases may have more to do with firings than hirings. Layoffs have largely collapsed. The monthly number is the difference between payroll additions ongoing firms that are hiring and newly formed companies and layoffs at firms continuing operations or closing. If the layoff pace slows, it takes fewer new positions to create strong growth. The separations rate is well below what we saw during the 2000s and other reports, such as the Challenger, Gray and Christmas monthly survey, also point to a slowing in terminations. As for the unemployment rate, it is nice we got down so low slowly and not through a bubble. The last two times the unemployment rate was this low was when we were coming to the end of the housing and tech bubbles. Right now, there is no major bubble we can point to (some say stocks, but I am not so sure), which means a sharp economic downturn is not on the horizon. Meanwhile, back at the Fed, there are probably smiles all around. This is the type of report that buttresses the view that the economy is strong enough to support additional rate hikes. Don’t be surprised if we get another increase at either the June or July FOMC meeting, even if the job gains decelerate. If investors are still hoping the Fed will move really slowly again this year, they are likely to be disappointed.