The best monthly jobs growth in more than two years — 288,000 in April — drew muffled cheers Friday after analysts looked under the hood of the Labor Department report and saw a labor market that still has some sputter in it.
The employment report, coupled with the household survey that said unemployment fell sharply from 6.7 percent to 6.3 percent — the lowest since September 2008 — looked shiny on the outside.
“The U.S. labor market finally came out of its shell and showed its head in April,” said Scott Anderson, chief economist with Bank of the West. It was a “surprise on the strong side.”
The statistics bureau also raised its job creation numbers for February and March by 36,000 — excellent signs that the job market emerged from a lackluster winter.
But the headline numbers also drew quick cautions from economists, even though the nation recently has been adding about 200,000 jobs a month after several years of plugging along at slower pace.
The big concern was that the unemployment decline was due to a sharp drop in the labor force participation rate. In other words, joblessness fell because about 806,000 fewer people said they were working or looking for work in April than in March.
The workforce decline could reflect more retirements from the big baby boom generation. It could include frustrated labor force dropouts who stopped getting unemployment benefits after the extended benefits program ended last year. And it even could include mothers of young children who plan to stay home for summer with the kids.
Whatever the underlying reasons, the unemployment rate decline “wholly masks the extent of the problem,” said Peter Morici, job market analyst at the University of Maryland. “The percentage of adults seeking employment dropped precipitously.”
Morici said one in six men aged 25 to 54 aren’t working and aren’t looking for work. Factoring in that group and others who should be working but aren’t, and the jobless rate looks more like 12.3 percent, Morici said.
And that doesn’t signal a healthy economy. The labor force last month was composed of only 62.8 percent of the 16-and-over population, a rate about as low as it’s ever been.
“There are still significant headwinds facing the U.S. labor market,” said Lindsey Piegza, chief economist at Sterne Agee.
Economists emphasized that a 6.3 percent jobless rate was still far higher than what usually has been tallied at this point in post-recession recoveries. And it remains at least 2 percentage points higher than what analysts would consider full employment.
About 9.8 million people were counted as unemployed, with about 3.5 million of them out of work for at least 27 weeks, the official definition of long-term joblessness.
Republican politicians, including House Speaker John Boehner, focused on the enduring unemployment number to call for a “more robust economic growth.”
Chad Stone, chief economist at the Center on Budget and Policy Priorities, said the long-term unemployment rate highlights “why Congress must restore federal emergency jobless benefits, which it allowed to lapse at the end of 2013.”
Given Republican positions against benefits extensions, that prospect is as unlikely as the minimum wage increase that Senate Republicans blocked earlier this week.
More less-than-tasty ingredients in the April jobs report included no growth in average hourly earnings for employees on private, non-farm payrolls. Over the past 12 months, average hourly earnings have increased just 1.9 percent.
“Wage gains remain soft,” said Russell Price, senior economist at Ameriprise Financial. But stronger corporate profit growth is promising, and “wage growth should gain further traction as additional slack is taken out of the labor market.”
The good April numbers and future prospects led Price, on balance, to call it “a very encouraging report.”
But challenges remain. The average workweek was stuck at 34.5 hours, factory overtime was cemented at 3.5 hours, and the manufacturing workweek decreased by 0.2 hour to 40.8 hours.
While celebrating the positive job growth in the private sector, many analysts also noted that the quality of the jobs is not consistent.
“Today, there are over 1.8 million more jobs in lower-wage industries than there were before the recession,” said Christine Owens, executive director of the National Employment Law Project, which advocates for low-wage workers. “There are nearly 2 million fewer jobs in mid- and higher-wage industries.”
The downbeats, though, shouldn’t eclipse the fact that private-sector employment has increased for 51 straight months.
And of particular note, “There’s a bright spot in state and local government hiring,” said Dan Heckman, national investment consultant for US Bank Wealth Management in Kansas City. “Municipalities, especially, are getting tax receipts above expectations, and we expect to see government hiring loosening up further in the second quarter.”
Overall, job creation averaging close to 200,000 a month over recent months is “consistent with an economy growing at around 2.3 percent” a year, wrote Maninder Sibia and Steven Wood, economists with Contingent Macros Advisors in an analysis.
Anderson, with Bank of the West, looked on the positive side and said the April payroll gains were “more consistent with a GDP growth rate well above 3.5 percent.”
The labor market gains also were “strong enough in my opinion,” Anderson said, for the Federal Reserve to continue reducing its monthly asset purchases designed as an economic stimulus. “Bottom line, (it’s) another solid employment report for April that brings the Fed closer to its goals on full employment.”
The bond market initially rose in response to the jobs report before sinking back to Thursday’s rate on 10-year Treasury notes. Analysts said that reflected concerns that the Fed might react to the positive job growth trend by raising interest rates.
“So there’s concern that an increase in interest rates wouldn’t be sustainable, that the economy is still too weak,” Heckman said.
In the main, economists focused on a rosier outlook. April’s payroll growth “signals that American companies are optimistic the economy will snap back smartly after the largely weather-related slump in the first quarter,” said Sal Guatieri, senior economist at BMO Capital Markets Economics.