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The Plow-Horse Economy Continues


Immediately after last month’s employment report, my firm told investors to “get a grip. The report . . . is not strong, but it’s not the very weak one many are saying.” Payroll growth had slowed, but total hours worked were up 0.4 percent. Today’s report was just the opposite: hiring accelerated in April, but firms cut hours. 

Nonfarm payrolls rose 165,000 in April, and were up 276,000 when you include upward revisions for prior months. (The headline that scared some investors last month was a soft 88,000 gain in payrolls, which has now been revised to a respectable 138,000.) Private payrolls were up 176,000 in April (300,000 including revisions to prior months). Civilian employment, an alternative measure of jobs that includes small business start-ups, increased 293,000. As a result, the unemployment rate declined to 7.5 percent, despite a increase in the labor force of 210,000 workers.

However, this month the devil was in the details, not the headlines. Hours per worker declined to 34.4 from 34.6, so total hours worked declined 0.4 percent, fully reversing last month’s gain. 

On net, what we have this month is what we’ve been seeing over the past year: plow-horse improvement in the labor market to go along with a plow-horse economy. It’s not going to win the Derby, but it’s not going to keel over and die, either. 

In the past year, nonfarm payrolls are up an average of 173,000 per month, with private payrolls up an average of 181,000. The unemployment rate has dropped 8.1 percent to 7.5 percent even as the labor force has grown an average of 57,000 per month. I expect more of the same in the year ahead. 

The most absurd commentary continues to be suggestion that the sequester is hurting jobs. Excluding the postal service, which is not affected by the sequester, government jobs are down 6,000 per month in the past two months, versus an average monthly loss of 5,000 in the past year. 

The big question is how the Federal Reserve reacts. It says a jobless rate of 6.5 percent could get it to raise rates. Today’s report undercuts its projection the country won’t reach 6.5 percent until mid-2015; instead, it supports my case for summer 2014. 

Obviously, the labor market is very far from perfect. The unemployment rate is way too high and payroll growth too slow. What’s holding us back is the huge increase in government, particularly transfers, over the past several years. Despite that, entrepreneurs and workers are gritting out a recovery and the plow-horse economy keeps moving forward.    


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