Forex Investment and Currency Trading

The April employment report showed a slowing in the recession, consistent with the general tone of the recent data. Non-farm payrolls fell 539,000 in April, the smallest monthly drop since October. However, prior months were revised down a net 66,000. Private payrolls declined 611,000, with all sectors outside education cutting jobs. Construction payrolls declined 110,000 and are now down 1.4 million from the peak in January 2007. The manufacturing sector shed 149,000 jobs, which is a moderation in the rate of decline, consistent with the latest ISM survey. Both goods- and service-producing payrolls fell by about 270,000. The decline in private payrolls was offset by a jump of 72,000 in government payrolls. This was due almost entirely to hiring of Census workers to begin canvassing for the 2010 Census.

As the market consensus had expected, the unemployment rate jumped to 8.9% (unrounded 8.870%) from 8.5%. This was driven by a surge of 683,000 in the civilian labor force; household employment actually increased 120,000. Although it is encouraging that people are once again looking for employment, many are finding it difficult to find work. Indeed, there were a record 2.9mn workers (data go back to 1990) who went directly into unemployment after entering the labor force. The household survey is much more volatile than the establishment survey, suggesting some caution when interpreting the data. That said, we interpret the gain in household employment as a positive sign.

Aggregate hours fell 0.6%, following a 1.0% drop in April. This translates to an 8.3% q/q saar drop in aggregate hours in 2Q, a slowdown from the 8.7% decline in 1Q. This indicates another decline in GDP in 2Q, consistent with our forecast. The work week held steady at 33.2 hours, but average hourly earnings were weaker than expected, rising 0.1% on the month and 3.2% y/y. Analysts expect the slowdown in earnings to continue given excess slack in the economy.

Overall, market believes today’s report suggests a moderation in the pace of decline in the economy. Businesses have already greatly reduced staff, shedding 5.7mn jobs since the end of 2007. As demand in the economy increases, businesses should slow the reduction in workforce and capital. Indeed, some expect the jobs recession to bottom in 3Q and payrolls to increase in the last few months of the year.