March Revisions Yield Sub-Par U.S. Jobs Report

At first glance the April employment report appears broadly in line with expectations, as both the consensus forecast for the headline payroll change and unemployment rate were largely on the mark. However, significant downward revisions to March shade the tone of the report to the weak side. Given the drift of market expectations for the Fed liftoff to occur in the latter half of the year, the April jobs report is not likely to significantly alter this view. The source of first quarter weakness is unclear. Those who blamed weather will take comfort in the sizable rebound in construction hiring, but a virtual stall in manufacturing payrolls over the past two months highlights ongoing problems in the factory sector. Factory hours worked continue to fall, as manufacturers deal with a big inventory overhang from the first quarter, which in turn suggests industrial production will again be weak in April. The unemployment rate fell, but a weaker-than-anticipated increase in average hourly earnings kept the year-on-year trend within its post-recession range. Thus, wage inflation remains contained.

• The U.S. economy added 223k nonfarm payrolls in April, pretty much in line with Street expectations of 228k. However, March was revised down to 85k from 126k. So while the consensus forecast was close to the mark, net negative revisions to the prior two months totaled 39k. Sceptics will argue that the “real” payroll change was still sub-par, with net payroll change effectively 184k (223k minus 39k). Furthermore, there now appears to be a consistent pattern of downward revisions, as net revisions were negative in February, March and now again in April. The second quarter is off to a modest start, stronger than the 184k job average during the first three months of the year, but softer than the 324k average registered during the fourth quarter of 2014. The April increase was the 55th consecutive monthly increase in nonfarm payroll.