Once again, it's time for the big indicator -- the monthly
April saw a high level of weekly unemployment claims throughout the month, but economists believe Friday's jobs report will reveal that the U.S. labor market is stabilizing.
On average, economists are expecting the April jobs report to show that payrolls increased at a slightly faster pace than in March, while the unemployment rate is seen edging up to 5.8% from 5.7%. Consensus estimates put the increase in payrolls for April at 60,000, up from an addition of 58,000 in March.
For the week ended April 27, weekly unemployment claims slipped to 418,000, down from 428,000 the week before. The average for the past four weeks fell to 435,000 from a revised 454,250 the previous week. Notably, the number of claims remains above 400,000, where they've been since the last week of March. In the first three months of the year, weekly claims hovered between 370,000 and 390,000.
The weekly data continue to be skewed by the government's extension of unemployment benefits, economists said. The numbers shot up in the last week of March, right after President Bush signed legislation that allows workers to extend their unemployment benefits 13 weeks beyond the initial expiration date.
"The last few weeks have been hopelessly distorted by this refiling business," said Anthony Karydakis, Banc One Capital Markets economist. "It will probably take another two to three weeks before this series becomes meaningful again," he said.
Peter Kretzmer, a senior economist at Banc of America, said that in the last six months, "we've moved from very rapid job loss to a more stable labor market. But it's still early in the recovery, and the labor market is lagging. We haven't got any more bleeding, but there's not a lot of net job growth yet."
March was the first month to show positive job growth since last July, as February's initial print of a 66,000 gain in payrolls was revised to a decline of 2,000. Both February and March numbers could be revised Friday, however.
Most economists said they didn't expect the distortions from the benefit extensions to filter into the April employment report. "The continuing claims data, which may have been inadvertently biased by the states, won't have any effect on the national household survey," Kretzmer said. "It's a separate survey and it doesn't ask anything about benefits. It asks are you looking for a job."
Morgan Stanley Dean Witter's Dave Greenlaw thinks the added benefits might have a major impact on the jobs report. The additional 13 weeks could act as a disincentive for the unemployed to take jobs, he said. Meanwhile, the new benefits program took effect after the survey for the March jobs report was completed, so any impact it might have will be felt for the first time in April.
Banc One's Karydakis characterized the jobs report as a highly unpredictable release. "It's a notoriously noisy report, because of problems with the survey, the reliability of the responses, the methodology used, the accuracy of the tabulation. It's always been a hard number to forecast," he said.
With that in mind, the report almost always influences trading. The data are considered timely and reveal information about both job and wage growth. Many consider the report the single best measure of the health of the economy.
Without the benefits extension Greenlaw said he would have forecast an increase of 75,000 to 100,000 in payrolls. With it, he's expecting an increase of just 30,000 jobs for the month of April.
"This is potentially a problem when labor demand is actually increasing, but in most cases, employers will be able to meet their demands," Greenlaw said. "The fact that we're transitioning from payroll declines to some modest increases is a reflection of a turnaround in the overall economy."
Greenlaw expects strong job growth in the service sector during April, with small gains in government jobs, which will offset continued sluggishness in some areas of manufacturing and flat job growth in the construction sector.
A high proportion of the continued layoffs in manufacturing will come out of the telecom space, with one of every three announced job cuts coming from that sector in April, according to a Challenger Gray & Christmas report released Thursday.
"That's a sector that continues to face problems, but it's not macro, it's micro," Greenlaw said. "Even including layoffs in that industry, we've see a sharp falloff in overall announcements since last year."
Temporary help sector jobs, which have been up in the last couple of months, should show growth again in April, several economists said, giving an important boost to the service sector and pointing to future strength in job growth. Temporary jobs are often the first to come back in an economic recovery.
"Temporary help may be turning around, which is a leading indicator of future job growth," said Merrill Lynch economist Bruce Steinberg, who expects payrolls to gain 30,000 and unemployment to rise to 5.8%.
Karydakis, who expects that payrolls increased by 100,000 or so in April, said the jobs report could have a major impact on the
Federal Reserve's decision about when to raise interest rates.
If payrolls increase by just 50,000, "that could very well hold the Fed back," he said. "In the eyes of the market, it actually may raise the whole question of whether an August rate cut is on the table."
Of course, if payrolls should rise sharply, say by 200,000, which might happen if the manufacturing sector shows stronger job creation than expected, "people could say, 'oops,' the economy is recovering aggressively," Karydakis said. "If next month you have another 200,000, then maybe the Fed could consider raising in June."