U.S. Jobs Report Delivers Biggest Forecasting Miss Ever

May 7, 2021

A net 266k non-farm jobs were added in April, more than 700k less than predicted. The 144.3 million level of employment remains nearly 50 million below the extended trendline of jobs growth occurring in the two decades between end-1979 and Y2K. Fed officials are right to believe that America is still far from what used to be considered full employment.

New jobs in March got revised downward by 146k, but those in February were revised upward by 68k. In April, food and beverage service jobs declined by 49k, messengers dropped by 77k, and administrative worker positions fell by 127k. There were also 18k fewer factory jobs.

In the half hour after the data were released, the 10-year Treasury yield fell another three basis points to 1.53%, some 21 basis points below its end-first quarter level. Today’s report creates some doubt in the rumor that the Fed by late summer could start considering when to start hiking interest rates, and this pause gave a big boost to high-tech equities.

The U.S. jobs report is notoriously resistant to accurate prediction, and this month produced the mother of all data surprises. Regarding why the 266k increase of employment was so much below analyst forecasts, here are a few thoughts. One, you can lead a horse to water, but you can’t make it drink. Covid restrictions are being relaxed, but not all consumer feel safe enough to drop their guard. Two, perhaps there were measuring or clerical errors involved. The anecdotal evidence had supported a bigger jobs increase.

Three, it’s never good strategy for policymakers or analysts of economic data to focus on a single data point. The three-month rise in jobs still exceeds 500k per month and is consistent with a very robust growth rate heading into the second quarter. By the same token, a 0.3% year-on-year rise in average hourly earnings, a 61.7% labor participation rate, and a continuing double-digit rate of unemployment and underemployment attest to the vast amount of continuing slack in the economy. Rapid economic growth with low but rising inflation is actually a nice backdrop for financial markets over coming months.

And finally number four — The Canadian jobs report for April also highlighted a big contrast from the prior month. In Canada, unemployment rose 0.6 percentage points to 8.1%. Employment fell 207k after rising 303k in March. Canada and the United States are closely intertwined. The March data were too strong to be merely extrapolated outward without assuming some months of consolidation.

Copyright 2021, Larry Greenberg. All rights reserved. No secondary distribution without express permission.




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