Messy april jobs report validates Fed's plan to wait to see actual progress

Summary

The bumpy road of fully re-opening an economy after a pandemic was on full display in April. Employers added just 266K workers, well short of consensus expectations. A number of factors weighed on the jobs recovery last month, but we suspect weakness is primarily attributable to shortages of both labor and physical inputs limiting activity and thereby hiring. Yet there were signs of the supply of labor improving, with the participation rate rising to 61.7%. We expect the jobs recovery to get back on track over the next few months, but this report underscores that the Fed will be patient for a while yet when it comes to scaling back accommodation.

The Road to Recovery Is Bumpy

Today's report is a shining example of why the Fed is taking a more cautious approach to policy these days, waiting to see actual progress rather than taking forecasts to the bank. Employers added 266K new jobs in April, well short of consensus expectations for a gain of 1.0 million. Revisions were also negative (-78K on net for February and March). All told, payrolls remain 8.2 million below their pre-COVID peak.

A number of factors appear to be tripping up the jobs recovery at present. Businesses, particularly in goods-producing industries, have a bevy of challenges securing parts and materials for production. That has led to some production being temporarily idled, and is likely behind the 18K drop in manufacturing payrolls last month, including a 27K decline in employment at motor vehicles & parts manufacturers, which has been the poster-child for parts shortages.

However, job losses extended beyond manufacturing and suggest the reorientation back toward "normal" will not be smooth. Transportation & warehousing jobs declined by 74K, with couriers & messengers more than accounting for the drop (down 77K). Retail employment fell 15K with solid gains at sporting goods and apparel stores being more than offset by a 49K drop at grocery stores. Meanwhile, leisure & hospitality employment increased 331K as in-person services hit hardest by the pandemic continue to make a comeback. Further, school re-openings and an improving budget outlook also led to a solid gain in government employment (up 48K).

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