Bullet Dodged as Payrolls Gain, Upward Revisions Help
- The April Payroll Employment Survey showed a moderate gain of 165,000 jobs, with positive revisions.
- The Unemployment Rate for February decreased to 7.5 percent, as the household survey gained 293K.
- Average Weekly Hours ticked down for the month to 34.4. Hourly earnings were up 0.2 percent.
- The ISM Non‐Manufacturing Index dipped to a still‐positive 53.1 in April.
- The U.S. International Trade Gap narrowed to ‐$38.8 billion in March, pointing to stronger Q1 GDP.
The April jobs report came in stronger than feared as the economy added a moderate 165,000 jobs and the unemployment rate fell to 7.5 percent. The report laid to rest fears of a weak jobs number, stirred up by other soft data released earlier this week. In addition to being good in April, by not being terrible, the jobs report showed strong positive revisions to February and March. Previously, the February data showed a strong +268,000 jobs for the month, now it shows a very strong +332,000 jobs, the best one‐month gain since May 2010. Likewise, March payrolls were revised up from a weak +88,000 to a so‐so +138,000. The unemployment rate came down a tenth in April, for the right reasons, to 7.5 percent, as the household survey showed a strong gain of 290,000 jobs. Key question…Does this report increase the odds that the Fed unwinds early from QE3? Probably not. It is a positive jobs report compared to the whisper fears. However, +165,000 jobs for April is still not a huge number, and the unemployment rate remains a full percentage point above the Fed’s 6.5 percent threshold. The Fed most likely stays the course with QE3 until a late summer re‐evaluation. If data is strong in August/September, then the unwind from QE3 begins in the fourth quarter of this year. If data is weak in the third quarter, then QE3 rolls into at least early 2014. By late summer, Chairman Bernanke will want to position Fed policy for a smooth transition to new leadership after he (perhaps) steps down in January 2014. Government employment continued to slide in April as federal government ex‐postal workers declined by 4,900. Sequestration will not only keep federal payrolls muted, but w ill also be a drag on hours worked.
The ISM Non‐Manufacturing Index dipped in April to 53.1, from March’s 54.4. The employment sub‐index remained positive at 52.0. The U.S. international trade gap narrowed unexpectedly in March to $38.8 billion. What makes this noteworthy is that the advanced estimate of first quarter real GDP growth, at 2.5 percent, will be revised up, to about 2.8 percent if other components of GDP remain unchanged. Imports were soft in
March, down $6.4 billion as oil prices eased. Exports were down $1.7 billion for the month.
Market Reaction: U.S. equity markets were boosted by the better‐than‐expected jobs report. Treasury bond yields are up. NYMEX crude is up to $95.25/barrel. The dollar is up versus the yen and down against the euro.