Payroll employment jumped by 211,000 in April, marking a sharp rebound from the tepid pace of March. Gains last month were driven by a surge in hiring in the leisure and hospitality sector, reflecting shifts in the way we spend more on vacations and experiences instead of durable consumer goods, like vehicles. The gains overall point to a catch-up to the weather-related weakness during the prior month.
Full-time hires in the professional services sector remained strong, though the number of temporary hires softened again. The increase in full-time shows the pickup in recruiting on college campuses. Consulting, an industry which recruits aggressively on campus, is also investing more aggressively in bringing young recruits on board and training them.
Hiring in the health care sector rose, but at a slower pace than the last year. The relative weakness started with the new administration and underlines the uncertainty about the fate of health care coverage.
Retailers added very few jobs; the industry has been losing jobs since the start of the year. That illustrates the secular move from bricks to clicks as well as the challenges retailers face in trying to find a balance between in-store and online operations. This is a result of changes in the way we spend, not how much we spend.
Manufacturing and construction jobs didn’t gain as much we had as hoped. The vehicle sector is struggling with production cuts, which will show up in May. Construction is constrained by labor shortages. Skilled carpenters retired without training new ones to replace them. At the same time, many skilled immigrants who worked in construction during the housing boom left the country after the bust. Net migration from Mexico has actually been negative since 2009.
Separately, the federal government shed jobs with the hiring freeze taking hold. Gains at the local level more than offset those losses.
Average hourly earnings slowed to 2.5% on a year-over-year basis. This is more reflective of the composition of job gains; almost a quarter of job gains were in the low wage hospitality sector.
The unemployment rate fell to 4.4%, but with fewer people in the labor force. The participation rate fell. The largest declines in April showed up among 25-34 year-olds, but off slightly from a recent high. The over-55 group included a pickup in retirements and ongoing issues with lower-skilled workers in their 50s. This is where the shadow of the Great Recession has been longest. On the plus side, young worker participation increased. Some of that reflects shortages in the service sector on top of the increased recruiting at colleges. Employers are starting to hire younger workers again, even teenagers. This can be seen in the deterioration of service that many of us have experienced at our favorite restaurants.
The U6, or stress measure of unemployment, moved down to 8.6%, which we find encouraging. However, the gap between the overall unemployment rate and the U6 measure remains large. This is a concern for the Federal Reserve Chair, Janet Yellen, who had hoped we would be able to reengage more of those on the sidelines, as we did in the late 1990s.
Bottom Line: April was a good month for employment and affirms our view that the momentum that took root in the second half of 2016 is carrying into 2017. The weakness in real GDP growth for the first quarter was a fluke. The Fed remains on track for another rate increase in June.