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Job Loss Far Below Expectations

Nat Worden

The government reported Friday that the U.S. job market declined for the fourth month in a row, with nonfarm payrolls down 20,000 in April.

The decline was smaller than the 75,000 drop in nonfarm payrolls that economists were forecasting on Wall Street, putting the stock market on track for an early rally amid renewed hopes that the economic slowdown will be short-lived.

Nonfarm payrolls figures were revised down to a decline of 81,000 in March and 83,000 in February.

Adding to the market's early optimism, the unemployment rate declined to 5% in April from 5.1%.

Combined with Wednesday's GDP report, which showed the U.S. economy continuing to eke out growth in the first quarter at a pace of 0.6%, the employment report fueled speculation that the Federal Reserve will keep its federal funds rate target steady at 2% in the months ahead.

Average hourly earnings increased a penny, or 0.1%, to $17.88. Continued sluggishness in wage growth is viewed positively on Wall Street, since a spike in wage growth would suggest that higher energy, food and commodity prices, along with the weak dollar, are translating into higher labor costs and causing an inflationary spiral.

This bolsters the Fed's forecast that slow economic growth will keep inflation in check, justifying its aggressive actions aimed at adding liquidity to the financial system to ease the pain of the credit crisis and housing slowdown. The central bank has now lowered its federal funds rate by 325 basis points since the outbreak of the credit crisis last summer.

To be sure, there's no shortage of economic data suggesting that growth is in peril. On Tuesday, Standard & Poor's reported that its Case-Shiller home price index of 20 cities fell by 12.7% in February vs. last year, the largest decline since its inception in 2001. Seventeen of the 20 metro areas reported record annual declines.

Also, the Conference Board said that its Consumer Confidence Index, which declined sharply in March, fell again to 62.3 in April. That's down from the revised 65.9 last month and 76.4 in February. The consumer sentiment index, tracked by the University of Michigan, has also dropped to its lowest levels in over a quarter-century after the U.S. recorded three-straight months of declines in the job market.

Friday's jobs report showed that the service-sector of the economy added 90,000 jobs in April after adding just 8,000 for the whole first quarter. Business and professional services companies added 39,000 jobs, reversing a sharp decline in March, and the financial sector added jobs for the first time in nine months. Education and health services employment rose 52,000, leisure and hospitality businesses added 18,000 new jobs and the government added 9,000 jobs.

But there were also declines in April. Goods-producing industries lost 110,000 jobs, with manufacturing firms cutting 46,000 jobs. Construction employment was down by 61,000, marking that sector's tenth straight month of declines. The residential real estate construction industry was hit particularly hard, as the housing downturn continued to take a toll.

While the government figures cheered Wall Street, a litany of high-profile companies have been succumbing to economic pressures and slashing payrolls.

Sun MicrosystemsJAVA on Thursday said it was cutting between 1,500 and 2,500 jobs as it swung to a loss in its most recent quarter. United Airlines parent UAL Corp.UAUA slashed 1,100 jobs after it posted a first-quarter loss last month.

Wall Street banks like CitigroupC, Merrill LynchMER and Lehman BrothersLEH have all cut payrolls, and many Bear StearnsBSC employees are expecting pink slips after its merger with JPMorgan ChaseJPM goes through.