Reaction to jobs report: Data play to Fed holding rates steady

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Wall Street is taking the better-than-expected April employment data with a few grains of salt early today. Although the Dow Jones industrial average was up as much 122 points on the news, most of the gain has since melted away. The Dow was up 20 points at about 11 a.m. PDT. But the dollar continues to rally and Treasury bond yields are up modestly, reinforcing the idea that many investors believe the economy is holding up relatively well given all that has been thrown at it.

Some reaction to the employment report, which showed that the economy lost a net 20,000 jobs last month, compared with a loss of 81,000 jobs in March, and that the unemployment rate dipped to 5.0% from 5.1%:

--Peter Kretzmer, senior economist at Bank of America: ‘Payrolls fell for a fourth consecutive month in April, but the magnitude of job losses slackened. Still, signs of softness continued, as goods-producing jobs actually fell at the fastest pace thus far and aggregate hours worked declined steeply. Payroll improvement was concentrated in the professional and business services category, including employment services, indicating a brightening in business sentiment. The key issue is whether this improvement is temporary or a longer lasting change in underlying sentiment. Today’s report will encourage the Fed to pause in its rate cycle, allowing the aggressive easing to date to impact the economy. While one more key employment report lies ahead before the next Fed meeting [June 25], we currently expect the Fed to remain on hold at that meeting.’

--Michael Darda, economist at investment firm MKM Partners: ‘One silver lining is that resilience in service sector jobs, which make up more than 80% of payrolls, has helped to offset the declines in the goods-producing industries, which continue to mount. Private-sector service jobs rose by 81,000 in April after three consecutive months of modest declines. Considering what has occurred in housing, and more recently in credit, we think the economy has shown remarkable resilience. The jobs data isn’t weak enough to put the Fed back into the rate-cut game, but it’s not strong enough for the Fed to consider hikes, either. A Fed on pause for the rest of the year is the more likely scenario. We believe the Fed will continue to follow the credit markets and real economy, not lead them.’

--Robert Brusca, head of Fact and Opinion Economics: ‘Many things do not really add up . . . for the recession forecasters. Job losses are way below the recession norm for this point of business cycle, if this is recession. The drop back in the rate of unemployment leaves this as the ‘recession’ with the smallest rise in unemployment from its threshold level as of the fifth month of recession. With slower job growth overall due to demographics this job loss is not so damaging. Now, rebate checks are headed out soon. Is it still a recession? Was it ever? Will it yet become one?’

Posted May 2, 2008