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Economic Insights

While headline numbers on job growth and the unemployment rate disappointed in April, key components of the U.S. employment report signal continued strong growth for the U.S. economy.

Read time: 2 minutes

The U.S. employment report for April, released May 7 by U.S. Bureau of Labor Statistics, fell far short of expectations for job growth, with nonfarm payrolls rising 266,000 for the month and the unemployment rate nudging fractionally higher to 6.1%.

But the headline numbers were inconsistent with the underlying details. Data on total hours worked show that the economy is growing robustly in the second quarter of 2021 and that industries that were trailing badly, especially leisure and hospitality, have started catching up as vaccinations accelerate the resumption of normal activity levels.

A Look at Key Components

Employment fell in manufacturing (clashing with the employment indicators in the April purchasing managers index reports) and distribution industries (retail & transportation and warehousing). This tends to validate widespread anecdotal reports about input shortages (most notably, semiconductors) and other supply chain frictions. However, zero additional construction jobs and only modest increases, on average, over the past three months clashes with the boom underway in residential construction.

A large contraction in temporary help jobs in April makes little sense if companies are truly finding it difficult to hire permanent employees. Meanwhile, job restoration in education, both public and private, has lagged badly, and will likely continue lagging until the start of the 2021-2022 school year approaches.

The bright spot was ongoing strong job growth in leisure and hospitality industries, the third consecutive month of robust increases. This is the area, along with health and social services, where most of the missing jobs in private service-providing industries are located and it should continue responding positively to increased vaccine distribution and relaxed restrictions on activity.

The largest shortfalls from peak employment are in public sector jobs; almost none of the jobs lost at the state and local level have been restored, and this is largely attributable to jobs in education.

Meanwhile, an increase in the workweek to an average of 35.0 hours meant that there was a 0.7% increase in total hours worked in April. That is consistent with an economy that is growing well above trend. In fact, if there is no additional growth in hours worked in May and June, the incremental hours worked are already enough to power real (inflation-adjusted) GDP growth at a rate higher than 5%. This means the economy remains fully on track for a robust recovery.

 

Figure 1. Hours-Worked Data Suggest the U.S. Economy Will Continue to Power Ahead
Percent change in three month-moving average of total hours worked (seasonally adjusted annual rate), January 31, 2018–April 30, 2021

Source: U.S. Bureau of Labor Statistics. Data compiled May 7, 2021. For illustrative purposes only.

 

Fed Policy and Investment Implications

We believe that overall, the data in the April jobs report are positive for risk assets since they reduce the potential for rapid overheating that would cause the U.S. Federal Reserve (Fed)  to start removing monetary accommodation and raise interest rates sooner than investors currently expect. The Fed has emphasized that it expects jobs lost during the pandemic to be restored before the shortfall from “maximum employment” is eliminated. Thus, slower job growth suggest that monetary policy will continue to be geared to supporting economic growth for longer.

 

The value of investments in equity securities will fluctuate in response to general economic conditions and to changes in the prospects of particular companies and/or sectors in the economy.

Forecasts and projections are based on current market conditions and are subject to change without notice. Projections should not be considered a guarantee.

This article may contain assumptions that are “forward-looking statements,” which are based on certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize or that actual returns or results will not be materially different from those described here.

The information provided herein is not directed at any investor or category of investors and is provided solely as general information about our products and services and to otherwise provide general investment education. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as Lord, Abbett & Co LLC (and its affiliates, “Lord Abbett”) is not undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement investor, contact your financial advisor or other non-Lord Abbett fiduciary about whether any given investment idea, strategy, product, or service described herein may be appropriate for your circumstances.

The opinions in the preceding commentary are as of the date of publication and are subject to change. Additionally, the opinions may not represent the opinions of the firm as a whole. The document is not intended for use as forecast, research, or investment advice concerning any particular investment or the markets in general, and it is not intended to be legal advice or tax advice. This document is prepared based on information Lord Abbett deems reliable; however, Lord Abbett does not warrant the accuracy and completeness of the information.

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