Special Report-April nonfarm payrolls expected to rise by 190k
Wednesday, May 5th, 2010March nonfarm payrolls rose by 162k
US April nonfarm payrolls and unemployment rate will be released on Friday May 7th. March nonfarm payrolls rose by 162k and the unemployment rate held steady at 9.7%. March nonfarm payrolls employment increased by the most in three years. The March employment report suggests that businesses and employers are gaining confidence in the US economic recovery and are starting to hire. Excluding census hires the March nonfarm payrolls rose by 124k. The March unemployment report suggests that the outlook for US labor market has improved. According to the Bureau of Labor Statistics (BLS) temporary workers and health services continued to add jobs along with employment in the federal government. Employment declined in financial activities and information.
Temporary hiring and long term unemployment up
On the positive side, the March unemployment report showed an increase of 40k temporary workers. Temporary hiring is normally considered an indicator of future job growth. So far temporary hiring hasn’t translated into many full time jobs. In addition, the average workweek increased and improving weather contributed to an increase in construction jobs. Construction jobs rose by 15k last month which was the biggest monthly increase since March 2007. On the negative side, long-term unemployment continues to rise and a third of the rise in the nonfarm payrolls reflects temporary or government workers. According to the BLS the long-term unemployed (those jobless for 27 weeks or more) increased by 414k to 6.5mln. 44.1% of unemployed persons were jobless for 27 weeks or more. In past recessions the level of long-term unemployed never reached 24%. The underemployment rate which includes part-time workers who prefer full-time positions and people who stopped looking for work increased to 16.9% from 16.8%. Government payrolls increased by 39k in March. Although more part-time workers were hired in March and the hours worked were up, wages slipped a bit.
Jobless claims and layoffs down, ADP employment up
April nonfarm payrolls are expected to rise by 190k with the unemployment rate unchanged at 9.7%. Optimism about April nonfarm payrolls report is fueled by a recent decline in US jobless claims, slowing of layoffs and Wednesday’s report of stronger than expected ADP growth. Initial claims for last week declined to a four-week low of 448k from 459k in the prior week. Initial claims for the week ending 05/01 will be released Thursday and are expected to decline to 440k. Initial jobless claims need to the fall below 400k to confirm that the US labor market is creating more jobs than its losing. Wednesday, Challenger Gray reported that layoffs declined by 43% last month to the lowest level in four years. April ADP private-sector employment rose by 32k, a reading of 25k was expected. The ADP report does not include census hires and suggests that the April nonfarm payrolls will come in near 132k. Additionally the Labor Department reported that job losses dropped last month in 372 of the largest US metropolitan areas. One wild card in the April employment report is uncertainty about how many new census workers were hired by the government last month. We suspect that the census hiring will add 100k to the April nonfarm payroll report. The government is expected to hire 1.15mln temporary census workers in the first half of 2010.
Headline unemployment rate to remain elevated
8.4 million jobs have been lost since the start of the recession in December 2007.The US economy is expected to create an average of 200k jobs per month over the next several months. Despite this jobs growth it will take an estimated five years or more to recover the jobs that were lost during the recession. According to an AP survey the headline unemployment rate is expected to remain elevated declining to 9.3% by the end of 2010 and 8.5% by the end of 2011. Although the trend of improvement in US labor market is likely to continue, jobs growth is unlikely to be strong enough to sustain more than 3% GDP growth or a vigorous consumer led economic recovery.
Growth and yield differential favor USD
The impact of Friday’s US unemployment report for the USD is likely to be positive. The USD   traded at a one year high versus the EUR Wednesday supported by safe haven flows sparked rising risk aversion and fear of contagion risk from the Greek debt crisis. USD has also been supported by stronger US economic data. Recent US economic data has shown improvement in consumer spending, and the housing market as new home sales rose at the fastest pace in 47 years. Manufacturing rose to its best level in six years. An above forecast April  nonfarm payrolls  report could fuel USD demand on speculation that the improvement in the US economy and labor market will encourage the Fed to move the timetable forward for tightening of monetary policy. With the EU recovery at risk from the sovereign debt crisis, growth and yield differential is moving in favor of the USD. An April nonfarm payrolls reading of less than 130k would be a blow to optimism about the US recovery and could spark a knee jerk sell off of the USD. The sell off would likely be short lived as focus has shifted to risk aversion and concern that the Greek debt crisis may not be contained.
Written by Easy-Forex
