April Jobs Data Disappoints Lofty Expectations
Investors betting on a continued acceleration in U.S. payrolls in April following March’s impressive numbers received an unwelcome reminder of just how choppy the data can be month-to-month.
The U.S. Bureau of Labor Statistics released its monthly employment report this morning, revealing that the domestic economy added only 266,000 jobs in April, well below Bloomberg-surveyed economists’ median forecast for a gain of 1,000,000. The prior two months also received net negative revisions of 78,000 jobs. The unemployment rate unexpectedly rose to 6.1% from 6%, though that was paired with an above-estimate gain in the labor force participation rate, which moved from 61.5% to 61.7%, equaling a recovery high. Average hourly earnings rose 0.7% month over month, signaling lower-wage workers did not rejoin the workforce to the degree expected.
Anecdotal commentary provided by companies in recent months detailing their difficulty finding qualified job candidates evidently worked its way into the data this month in a big way. There are a few explanations for why this might be. Enhanced unemployment benefits may reduce the urgency for some to return to work. Additionally, still-closed schools and lack of child-care may make it difficult for workers to return to the in-person segments of the labor markets.
And finally, March’s big jump in payrolls may have represented a rehiring of workers with whom hiring managers already had relationships, such as furloughed employees. Hiring new workers requires a more rigorous, and time-consuming, vetting process.
As seen in the chart below, April bucked the reacceleration trend seen off the December 2020 low. Total payrolls still sit about 8.2 million below the February 2020 peak of 152.5 million, but we are still very optimistic about our ability to recapture the lion’s share of those losses quickly despite today’s disappointing readout.
“The job market got a bit of a reality check this morning,” explained LPL Financial Chief Market Strategist Ryan Detrick. “While we always caution against reading too far into one data release, we think most of the cited factors that suppressed April’s payroll number should wear off naturally with time. We believe that despite April’s speedbump the overall trend will be higher from here.”
Given the magnitude of the total loss that still needs to be recovered and the varying degrees to which parts of our economy are currently open, we believe jobs data will carry the potential for strong upside surprises for at least the next several months. Improving employment trends—though choppy—buoy consumer strength, and the economy overall, given consumers’ large weighting in the calculation of gross domestic product (GDP).
As such, we continue to recommend positioning portfolios to take advantage of these trends, where appropriate, including an overweight allocation to equities relative to benchmarks, and a tilt toward sectors that may benefit more from a continued cyclical upturn.
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