Professional and business services led the way in job creation, adding 73K jobs in April. However, temporary help services comprised nearly half of that amount, adding 30K jobs. This could be a good sign that employers are finding more demand for labor, and a rise in temporary help usually portends a rise in full time employment down the road. However, it could also be the result of many employers using temporary workers instead of full time workers either to save on healthcare costs or because they are not sure how healthcare reform will affect their business. Leisure and hospitality services added 43K jobs in April following a 38K rise in March. Retail services saw a nice rebound, adding 29K jobs following a 4K dip in March, which was likely driven by unusually harsh winter weather and the effects of the payroll tax hike.
On the downside, construction employment fell 6K as the industry took a breather from strong growth the prior two months that was fueled by the resurgence in the housing market. The harsh winter weather may have played a role here as well. Information services fell by 9K, while government payrolls declined by 11K. Government payroll declines were driven primarily by federal cuts as the Postal Service continued to pare staff.
Today's report was welcome news after a weaker than expected first quarter GDP report and slowdown in manufacturing. The economy has now regained about 70% of the jobs lost during the recession (chart 1). Still, employment growth has slowed a bit over the past year and is slightly below the pace seen prior to the recession (chart 2). This is certainly not what the Fed had hoped for after injecting trillions of dollars into the fixed income market in an effort to lift the economy. Although the unemployment rate has come down steadily (chart 3), it is still very high considering interest rates are at record lows and corporate profits are at record highs.
In order for the economy to gain more momentum, banks will need to increase lending, especially to small businesses, which are still finding access to credit difficult. Uncertainty also needs to be cleared up on taxes, spending and healthcare reform. Until business leaders are more clear about the way forward on fiscal policy and healthcare, it is going to be difficult for them to significantly increase payrolls and get the economy on a more sustainable footing. Until then, the Fed will continue to stimulate the economy while big corporations will favor share buybacks, acquisitions and productivity enhancements rather than adding to staff. Longer term, the economy is in for a difficult adjustment period once Obamacare kicks in next year. Thus, be prepared for further economic weakness and more volatility in the financial markets.