April jobs report
KPMG Chief Economist Constance Hunter provides her analysis of the April 2021 Jobs Report.
So, what does it mean that the employment report missed? Let's dig under the hood and differentiate the signal from the noise. The diffusion index came in above the 60 suggesting that employment gains were made by a broad number of firms. Second of all, if we look at the shift from those who are working part-time involuntarily, had their hours worked such that they're working full-time, that is 583,000 people, that is more than the change for all of the first quarter combined and this suggests that there is more of a supply problem than a demand problem. In other words, all those surveys that show that there are worker shortages and that firms are having difficulty hiring, was borne out in this number. Another data point that shows that there is some friction within the labor market, is we see an increase in wages for non-supervisory workers. This is a sign that these workers have a higher reservation wage and that to some extent employers are meeting that higher reservation wage. We also expect that friction came from lack of consistent childcare options and a continued hesitancy to go back to work at jobs where people must work at their job site. Finally, it can't be ignored that the supplemental unemployment insurance is something that's going to come very much into focus when people think about this report. We would like to wait for another couple months to see how the jobs market evolves as we move into the summer months. We expect demand to continue to remain strong for employment and we expect some of these frictions to begin to be worked out, as wages continue to come up and as childcare options continue to become more available as the economy opens.
April jobs numbers shock
Today’s jobs numbers were somewhat shocking. While nonfarm payroll employment rose by 266k in April it was still well below consensus expectations of 1 million. The unemployment rate ticked up 1/10th of a percent to 6.1% for the first increase since the pandemic began, this being due to the increase in labor force participation, so a rise for the good reason that more people are looking for work.
Some sectors fared better than others, leisure and hospitality employment rose by a solid 331k last month, but that growth was offset by employment declines in almost every other major industry. For example, motor vehicles and parts employment dropped by 27k, and employment in wood products and professional & business services were down 7,000 and 7,900 respectively.
Labor force participation rose by 0.2 percentage points to 61.7%, matching the pandemic high in August 2020, indicating that the vaccine rollout has at least somewhat reduced barriers to reentering the labor market.
Employment data tends to have a large amount of seasonality, which some hypothesized may have affected today’s release. Initial work by our team suggests this likely did not play a big role in the low jobs print. That said, even excluding seasonality, changes in payrolls tend to move around a lot month-to-month, which is why looking at a trend estimate – such as a 6-month moving average – is helpful. Smoothing through the fluctuations shows a labor market that continues to recover despite this morning’s disappointing news.
There is friction in the labor market. The details of this payroll report suggest that the number of jobs added reflect a lack of labor supply not a lack of demand. Workers are still contending with a shortage of child care options – lack of full time in-person schooling, lack of daycare and afterschool programs, workers that may be hesitant to return to in person, and finally the supplemental unemployment insurance may be causing workers to have a higher reservation wage, the wage at which they are willing to work. We saw month over month increases in wages of leisure and hospitality workers.
All in all, don’t read too much into the lower than expected headline number. We anticipate a gradual reduction in frictions, continued demand for workers and possibly higher wages, especially for low wage occupations, as the recovery continues.