We have seen U.S. employment drop by 76,000 to 80,000 fewer jobs in each of the first three months of 2008, and Action Economics expects a somewhat smaller deterioration in April's employment report, scheduled for release May 2.
We expect nonfarm payrolls to drop another 60,000 in April, compared with economists' median forecast of a 73,000 decline. The unemployment rate should rise to 5.2% (median 5.2%) from 5.1%.
Looking at other components of the report, the average workweek is expected to drop back to 33.7 hours (median 33.7 hours) following the stronger-than-expected 33.8 hours in March. Average hourly earnings are expected to increase 0.3% (median 0.3%), which should leave nonseasonally adjusted year-over-year earnings hovering in the same 3.5%-4.0% range seen over the last six months.
Factory Woes
The mix of payrolls by industry should show continuing weakness, especially in goods-producing industries, while job growth in the service sector remains weak.
How did we arrive at our forecast? Here are some of the economic reports we used in making our call:
The ADP Employment Survey, which tracks the private sector, showed a gain of 10,000 in April, which may be seen as signaling at least some upside payroll risk. The industry breakdown was typical of the mix in recent months, with a 54,000 drop for goods employment, a 26,000 drop for factory employment, and a 64,000 gain for service-sector employment.
The weekly initial and continuing jobless claims data have been volatile over the past month, as the seasonal factors appear to have had a particularly difficult time with the timing of the Easter holiday this year. Aside from big weekly swings, however, the claims figures suggest that payroll weakness in April should be similar to what was seen in recent months. Initial claims are averaging 358,000 in April, following averages of 372,000 in March, 346,000 in February, and 337,000 in January.
Shrinking Payrolls
Although payrolls are deteriorating at a pace in line with prior recessions, the 50,000-60,000 rise in average monthly claims since the middle of last year is much smaller than the 100,000-150,000 rise that would normally be expected in a recession.
The University of Michigan consumer sentiment survey and the Conference Board's consumer confidence survey both pushed to new lows in April. The Michigan survey has dropped to the lowest level since March, 1982, while the Conference Board survey has dropped to the lowest level since March, 2003. These figures suggest continued downside payroll risk on the month, as confidence declines are historically closely correlated with a weakening labor market.
The employment components from the various regional factory sentiment surveys that have already been released have further weakened in April. The Empire State employees index dropped to 0.0 from 4.5, while the workweek held at 0.0. The Philly Fed employees index moderated to 0.2 from 0.6, and the workweek plunged to -9.2 from -1.5. This implies another weak month for factory employment.
In total, the April employment report is likely to repeat the weakness evident in the first three months of 2008. Most labor market indicators suggest that the jobs market continued to weaken in April, and there seems little reason to project that the pace of labor market deterioration diminished on the month.