U.S. Job Creation Soars

Department of Labor calculations estimate that the United States’ job creation soared in the month of April.  Specifically it added a massive 244,000 jobs.  A broad swath of economists had expected only 185,000 jobs would be created.  Private Sector job creation was the strongest, adding 268,000 jobs.  Last month’s jobs created figure was revised upward by a modest 5,000 jobs.  Lastly, the unemployment rate rose to 9.0% vs. expectations that it remain flat at 8.8%.

Analysis: That the economy has added a quarter of a million jobs in one month and that the job creation exceeded expectations by almost 32% is tremendously important.  It is obvious that U.S. corporations are finally hiring and to such a degree that it has overwhelmed statistical methods for estimating how much.

More jobs will mean a more confident consumer and a better monied consumer.  So gross domestic product (GDP) – that is, the economy – is getting much more solid foundations.

Private sector job creation accounted for more than 100% of the jobs added.  That means that government (federal, state and local) lost significant amounts of employees.  In fact, that was the story yesterday as to why jobless claims rose so much.  However, the public sector is a lagging indicator of economic health.  Why?

Because it is more difficult to fire a public employee.  Governments are only now reconciling their budgets to many years of reduced tax revenues.  Those revenues were lower because of the Great Recession.  People spent less so sales tax receipts were lower.  Fewer people were working so income taxes were lower.  And so forth.

I have no doubt that when the employment situation improves even further that we will see the public sector employment pick up.  However, that improvement in government jobs may be more than a year from now.

Now it may appear a paradox that the U.S. economy could have added so many jobs, yet the unemployment rate went up.  How could that be?  First, and most importantly, I consider this a very, very bullish sign.  Why?

For over two years I have been saying that the unemployment rate will remain stubbornly high even once the U.S. economy starts adding jobs.  The reason is because the Labor Department only includes people who are actually looking for work in its unemployment figures.  Thus, it might be the case that you are not working, and in reality, unemployed, but if you are not actively looking for work you don’t get counted.  Meaning that the most frustrated of the unemployed are not counted in the data.

What would it take to motivate someone who is very frustrated by a lack of work to confront that frustration and re-enter the job search world?  Jobs noise, and lots of it.  In other words, they have to hear through the grapevine that jobs are becoming plentiful.  Then the resume gets dusted off and applications filled out.  But then the byproduct of that enthusiasm is an increase in the unemployment rate.  Does this make sense?  The previously excluded folks are now included in the ranks of the unemployed because they are looking for work.  So this is a bullish sign.

Importance grade: 10; given the past four weeks worth of jobless claims data that showed increases in the ranks of the unemployed, it is very important to have seen that the data don’t lie.  Those data primarily showed governments shedding jobs, not the private sector.  Today’s actual job creations number easily trumps the jobless claims number.  What I would like to see is even more months of strong job creation.  Then finally, psychologically, the Great Recession will be over.

Jason