U.S. Job Decline Still Severe in April, But Slowing

The employment decline was dampened in part by temporary government hiring of Census workers, but most major private employment categories showed slower rates of decline. The private-sector workweek held steady. And there were indications that industry's headlong decline is bottoming out, as the manufacturing workweek rose for the first time since July 2008, and manufacturing overtime rose for the first time since November 2007.

Manufacturing cut 149,000 jobs in April, compared with 167,000 in March. Auto industry employment showed another sharp decline (down 29,000). There were continued heavy job losses in most other segments of manufacturing, notably fabricated metals (down 29,000) and machinery (down 22,000). One segment, food manufacturing, did add jobs (10,000). There was positive news in the manufacturing workweek, which rose 0.5%. Overtime also rose. The overall decline in manufacturing hours of 0.9% was the least severe since July 2008. This suggests that manufacturers are starting to bring excess inventories under control, so that the rate of production decline is now easing.

Construction lost 110,000 jobs in April, compared with 135,000 in March. The residential sector lost 52,000 jobs, and nonresidential lost 41,000. The residential sector does not have much further to decline, but the nonresidential side is not close to a bottom.

The private service sector lost 341,000 jobs, compared with 375,000 in March. Retail trade (down 47,000), wholesale trade (down 41,000), and transportation and warehousing (down 38,000) all lost heavily, as the flow of goods through the economy continued to weaken. The financial sector lost 40,000 jobs. Low-end temporary help jobs fell 63,000, while high-end professional and technical jobs fell 17,000, with architectural and engineering services again hit hard (down 14,000). Accommodations and food lost 14,000 jobs, much less severe than the 32,000 loss in March. The only major private service sector adding jobs remains healthcare, up 17,000 last month, similar to March's 14,000 gain.

Government employment showed a sharp 72,000 increase, with the federal government adding 66,000 jobs, and state and local payrolls rising 6,000. On the federal side, there was a 63,000 increase in jobs outside the Postal Service, which largely reflects temporary hiring of workers for preparatory work on the 2010 Census. Those temporary jobs will disappear by the summer, but there will be another (much larger) surge in federal employment next spring when the Census actually occurs.

The headline unemployment rate rose from 8.5% to 8.9%. The household survey, which determines the unemployment rate, showed household employment rising 120,000, but the labor force rising even faster, by 683,000. One could try to argue that the rise in the labor force reflects people feeling more optimistic about the outlook and returning to the job market. We think that argument is a stretch, and believe that it is more likely that the household employment and labor force shifts reflect sampling volatility. The household survey is mainly designed to measure the unemployment rate, rather than changes in employment and the labor force.

The most comprehensive measure of underemployment—which includes workers who would like a job but are not currently looking, plus those working part time who would rather work full time—rose again, from 15.6% in March to 15.8% in April, but this was a much smaller increase than in recent months.

The job market is not the first place that one would look for green shoots of recovery, but there were one or two hints of improvement here. Weekly hours were stable overall, and rising in manufacturing. And the rate of decline of temporary employment eased for the third successive month (to 63,000, versus a peak loss of 90,000 in January). But we are still some way from seeing the increases in temporary employment that would signal labor market improvement.

Moreover, there were still plenty of worrying signs in the report. The figures gave a cautionary warning about consumer incomes. Hourly earnings rose only 0.1% last month, which combined with the still-heavy job loss of signals a continuing decline in overall wage and salary incomes—bad news for household purchasing power.

Although we expect the economy to bottom out in GDP terms during the second half of the year, job losses should continue throughout 2009, and the unemployment rate should peak at just above 10%. We still expect total job losses to exceed 7 million. But the signals from initial unemployment insurance claims (declining) suggest that we can expect to see another clear deceleration in job losses during May. There is light at the end of the tunnel, and it is getting brighter.