What it means for U.S. economic outlook

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Server Nioka Mantilla arranges items in the buffet at the DoubleTree by Hilton Hotel on Penn Street in Reading, Pennsylvania, Friday morning May 7, 2021.

Ben Hasty | MediaNews Group | Reading Eagle via Getty Images

The stunningly disappointing April jobs report shouldn’t be taken as an indictment against the fast-moving economic recovery but shouldn’t be dismissed as merely a one-month blip either, according to Wall Street economists and market experts.

A confluence of factors helped explain the weak Labor Department count that showed nonfarm payrolls grew by just 266,000 in a month that forecasters had expected to see 1 million.

Among them: low labor supply caused by a lack of qualified workers, reluctance of some to go back to work because of Covid-related fears and the continuation of enhanced unemployment benefits, and seasonal factors that skewed expectations for job creation.

“The main thing we learned in this reopening trade was that we thought it was going to be this smooth trend of all this good stuff happening. What we’re starting to realize is it’s probably going to be a little bit bumpier,” said Jim Caron, head of global macro strategies for the Global Fixed Income Team at Morgan Stanley Investment Management.

“The road is still pointed in the right direction. It’s just going to be a little less smooth than we had thought,” he added.

Some positive signs amid the weakness

Despite the big miss, there were still things to like in the report that pointed to strong fundamental factors for the jobs market even if the headline number was a big letdown.

For one, the unemployment rate rose 0.1 point to 6.1%, but that was primarily because more Americans returned to the labor force, a critical metric for policymakers.

Also, the level of working remotely fell to 18.3% of those employed from 21% in March. Those who said they weren’t working because their employer closed or lost business due to pandemic-related reasons declined from 11.4 million to 9.4 million. Those prevented from looking for work due to the pandemic fell to 2.8 million from 3.7 million the previous month. The average duration of unemployment declined to 28.8 weeks from 29.7 weeks.

Lots of questions

Wages did accelerate during the month, rising 0.7% from March though flat year over year. The gains may have reflected added pressure on businesses to pay more in order to encourage workers to return to jobs.

The combination of higher pay and a slight decline in hours worked “suggests labor shortages are becoming more evident, which may in turn be a factor holding back jobs growth,” Capital Economics senior U.S. economist Michael Pearce said in a note.

“Overall, it is difficult to judge how much weight to put on this report at a time when most of the other evidence suggests economic activity is rebounding quickly, but it is a clear reminder that the recovery in the labor market is lagging the rebound in consumption,” he added. “That’s a crucial distinction for the Fed.”

Nationwide Mutual chief economist David Berson said the April numbers raise the question of “whether this relatively weak employment report is a sign of a weakening demand or a sign of lack of supply.” Within that question is whether unemployment benefits, which provide $300 above what recipients normally would get, are too high. He also wondered whether a skills mismatch is at play, if it’s a matter of schools yet to reopen, or if business start-ups are lagging.

“All of these probably are playing a role,” he wrote.