The U.S. labor market stunningly blew away analyst expectations by adding 288,000 jobs in April, the best monthly addition in more than two years, and the national unemployment rate dropped by 0.4 points to 6.3 percent. The Labor Department also upwardly revised job totals for February and March by a combined 36,000 in its latest report on U.S. employment conditions.
The surprisingly strong job growth, which was well above the 210,000 new jobs that were forecast, injected a confidence among economists to say that weak first-quarter job numbers and economic growth were a blip. Last week, the government’s advanced GDP estimate for the first quarter was a virtually stagnant 0.1 percent — well below even the sub-2 percent forecast — but economists now are predicting above-3 percent GDP expansion for the second quarter.
“All things considered, [the] report should be reassuring in the wake of the surprisingly weak GDP report,” said Jim Baird, chief information officer of Plante Moran Financial Advisors, to Forbes. “It appears that employers have bought into the idea that the weak stretch was weather-driven. Given April’s strong job gains, it looks increasingly likely that growth should pick up sharply in the second quarter.”
Still, there were less positive signs in the federal employment report. While the 6.3 percent unemployment rate is the lowest since the financial crisis in 2008, and 1.2 percent lower than April 2013, analysts are pointing to the 806,000 people who dropped out of the labor force last month, which more than erased the labor force additions in March. The labor participation rate fell by 0.4 points to 62.8 percent, continuing to plumb all-time-low depths.
“The part that is a little less positive is this apparently wonderful story on the unemployment rate,” Dan North, chief economist at Euler Hermes North America, told Forbes.
Last month, 7.5 million individuals were working part time because their hours were cut back or they couldn’t find full-time employment, which was 100,000 more than March. The number of long-term unemployed (out of work for at least 27 weeks) in April was 3.5 million, a decline of 287,000.
The Labor Department counted 2.2 million individuals who were not part of the labor force last month but were ready to work. These “marginally attached” workers are available but not looking for jobs. The number of unemployed persons in the country fell under the 10 million mark to 9.8 million.
Job additions last month were led by professional and business services (75,000, including 9,000 in computer systems design and services), retail (35,000), construction (32,000), and food and beverage services (33,0000). Mining added 10,000 jobs and health care 19,000 positions.
Manufacturing employment expanded by 12,000 jobs, with most of the additions coming from auto production, metal fabrication, and machinery building.
ISM’s April Purchasing Index Doubles Pace
The manufacturing sector reaccelerated in April, expanding more than twice the pace in March, in the latest Institute for Supply Management (ISM) purchasing managers index. The ISM PMI increased 1.2 percentage points to 54.9, primarily on strength in manufacturing employment.
Manufacturing is expected by analysts to quicken its pace into the second quarter, in part to rebounding consumer demand as well as more bookings for business equipment. One respondent to the monthly ISM survey, a machinery maker, noted, “Spring of 2014 is 3 to 4 percent better than spring of 2013.”
As the pace of new orders stayed the same as in March, at a 55.1 index, manufacturers still continued to try and work off their stockpiles but seem to be having little effect. Inventories at manufacturers grew for the third consecutive month and at a faster pace in April, by 0.5 points, to 53.0. Meanwhile, manufacturers indicated their customers’ inventories were “too low” again, at 42.0 percent, unchanged from March. Customer inventories are at their lowest levels in three years, according to ISM.
Manufacturing activity, as measured by the production index of 55.7, grew but slowed down slightly from March’s 55.9. In similar fashion, order backlogs grew in April but at a 2.0 percent slower clip, at an index of 55.5, after ballooning from 52.0 to 57.5 in March.
The slowed production growth coupled with rising backlogs underscored a need for more labor, and that showed through a 3.6-point acceleration in April hiring. At 54.7, ISM’s PMI employment index expanded for the 10th straight month.
One transportation equipment manufacturer commented to ISM, “Overall business is up. Hiring is also up. Skilled trades [are] in short supply.”
Along with finding capable labor resources, supplier deliveries continued to be a challenge, as manufacturers reported to ISM. The slowness in manufacturers receiving goods from their suppliers exacerbated from 54.0 to 55.9 last month. Deliveries have slowed every month since the start of the year.
The average commitment lead time for capital expenditures increased 6 days to 127 days, and average lead time for production materials decreased by 3 days to 56 days. Maintenance, repair, and operating supplies increased 2 days to 30 days.
A continuing bright spot in the ISM report is new export orders. Bookings from overseas reached 57.0 in April, a 1.5-point jump, and demand from cross-border customers has grown for 17 straight months.
In the last 12 months, the ISM PMI has averaged 54.4, with a high of 57.0 and a low of 50.0, indicating no month where the manufacturing sector contracted.
Factory Orders Strong Again in March
U.S. factory orders in March grew by 1.1 percent, while orders for core capital goods, which represent business investment, jumped by 3.5 percent. Along with a strong jobs report and a 0.9 percent rise in March consumer spending, demand for manufactured goods is expected to accelerate in the second quarter after a timid first quarter.
Although economists had forecast a 1.5 percent expansion in factory bookings for March, the month’s orders, tallied by the Commerce Department, still represented strong growth and affirmed that manufacturing demand is moving positively after a sluggish start to the year. The 1.1 percent rise followed a 1.5 percent rise in orders in February, which was marginally revised from an advanced estimate of 1.6 percent.
However, the surge in business equipment orders was the biggest in more than a year and more than offset a 0.9 percent decline in February, revised from a 1.4 percent reading earlier. Manufacturers’ shipments were also up for the second straight month, improving by 0.3 percent. Shipments within the month, valued at $495 billion, represented the highest level since 1992.
Manufacturers continued to be challenged by backlogs and an inventory glut that hit another new record level in March. Inventories have been up 15 of the last 16 months, though the rate of stockpiling decelerated to 0.1 percent growth from 0.7 percent in February.
Unfilled orders also reached a new high, rising 0.6 percent over the previous month. But manufacturers were able to pare down the ratio of shipments to backlogs from 6.49 to 6.44 because of volume of goods it moved in the month.
In March, new machinery orders rose 2.7 percent, underscoring growing business spending. Many major machinery categories rebounded with increases in orders, with the exception of metalworking equipment and industrial machinery.
The slump in metalworking machinery orders worsened from -0.6 percent to -0.9 percent, while orders for industrial machinery slipped from 9.6 percent in February to 5.1 percent growth. The pace of construction machinery orders, on the other hand, nearly doubled from 4.8 percent to 9.5 percent.
Bookings for computer and electronic equipment accelerated as well, going from 1.4 percent in February to 5.3 percent. The major drag on the category was defense communications equipment, which tumbled by 20.2 percent. Appliance demand rebounded from a February contraction to 4 percent growth.
In the volatile transportation section, orders for new ships and boats spring-boarded by 89.5 percent; bookings for marine craft have surged since January. It countered slumping orders for autos, which slowed from 3.8 percent to 1.1 percent, as well as for both civilian and defense aircraft, the latter of which saw orders contract 5.8 percent.
Slow Public Works Plague Construction Spending
Construction spending in March grew by a mere 0.2 percent to an annualized rate of $942.5 billion, in the Commerce Department’s latest report. Failing to meet economists’ consensus of a 0.5 percent expansion, spending was hampered by the fifth straight month of decline in public projects.
Outlays for public construction fell by 0.6 percent in March and were down 0.8 percent compared with the same month in 2013. Spending was dragged down by a 6.6 percent drop in housing projects. March was the lowest level in public construction spending since November 2006.
Monies for health care facilities, schools, parks and playgrounds, and power-generating facilities all saw decreases. However, outlays for transportation and water supply projects saw increases.
In its February revision, the Commerce Department reversed a previously reported 0.1 percent gain in spending to a 0.2 percent drop.
Spending on private construction projects expanded by 0.5 percent in March and was 12.5 percent higher than the same period last year. Private residential construction expanded by 0.8 percent and grew for the fifth straight month to $369.8 billion — 16 percent higher than in March 2013 and the highest level since May 2008.
Construction spending on manufacturing facilities increased by 0.6 percent to almost $52.1 billion.