After two disappointing employment reports earlier last week – in the form of the ADP National Employment Report and the weekly Initial Jobless Claims Report – the labor market finally received some positive news on Friday when the Labor Department released their official Jobs Report that showed 244,000 jobs were created in April. That was far above all expectations and it was the biggest private job increase since 2006!
But where did this number come from and is it accurate?
This headline number comes from the Current Population Survey, which uses the birth/death model to guesstimate the amount of jobs lost or gained in different industries – based on how many businesses were “born” or “died.” And it isn’t until we get revisions to the previous month’s reports that we get a more accurate and final number.
Furthermore, history has shown that the birth/death model is a lagging indicator – and at the start of an improving labor market, like we are seeing, the future revisions will likely show more jobs created than previously reported. This dynamic was evident in this month’s Jobs Report, as revisions to March showed that an additional 46,000 jobs were created.
Despite the better-than-expected number of jobs created, the unemployment rate ticked up to 9% from 8.8%. The data for the unemployment rate comes from an entirely different survey – the Household Survey – and is a bit contradictory to the headline news. This shows that the jobs being created aren’t enough to have yet made a significant dent in the number of jobless Americans.
Also in the Jobs Report, average hourly earnings were reported up by 0.1% to $22.95 per hour. Hourly earnings have increased by 1.9% year over year, not enough to create “wage-based inflation,” which is where employers have to increase the prices of their goods and services to cover increased wages.
Although the Jobs Report was mixed, the overall positive tone does indicate that the labor market is gradually improving. As the labor market improves, so will the economy and housing and with that, interest rates will gradually rise as well. In the short run, the recent rise in bonds is encouraging. However, after such a strong run higher, it would not be surprising to see some downside follow-through in bonds – which could mean higher home loan rates. The good news is that home loan rates recently reached some of the best levels so far in 2011.
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