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U.S. hiring takes big step back as businesses scramble for workers, raw materials

Economic IndicatorsMay 07, 2021 05:31PM ET
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© Reuters. FILE PHOTO: Construction workers wait in line to do a temperature test to return to the job site after lunch, amid the coronavirus disease (COVID-19) outbreak, in the Manhattan borough of New York City, New York, U.S., November 10, 2020. REUTERS/Carlo All

By Lucia Mutikani

WASHINGTON (Reuters) - U.S. job growth unexpectedly slowed in April, likely curbed by shortages of workers and raw materials as rapidly improving public health and massive government aid fueled an economic boom.

The Labor Department's closely watched employment report on Friday, which showed a plunge in temporary help jobs - a harbinger for future hiring - as well as decreases in manufacturing, retail and courier services employment, sparked a heated debate about the generosity of unemployment benefits.

The enhanced jobless benefits, including a government-funded $300 weekly supplement, pay more than most minimum wage jobs. The benefits were extended until early September as part of a $1.9 trillion COVID-19 pandemic relief package approved in March. Montana and South Carolina are ending government-funded pandemic unemployment benefits for residents next month.

Economists say some workers could still be fearful of returning to work even as all adult Americans are now eligible to receive COVID-19 vaccinations. Others also cited problems with child care as in-person classes remain limited in many school districts. Labor and input shortages have been well documented by business surveys.

"The employment gain is understated in part because of the generous largess from Washington," said Sung Won Sohn, a finance and economics professor at Loyola Marymount University in Los Angeles. "Short-staffed restaurant owners are working overtime, truck drivers are impossible to find even after a hefty increase in hourly wages and loading docks at warehouses are keeping trucks idle as there aren't enough workers."

Nonfarm payrolls increased by only 266,000 jobs last month. Data for March was revised down to show 770,000 jobs added instead of 916,000 as previously reported. Economists polled by Reuters had forecast payrolls would advance by 978,000 jobs.

That left employment 8.2 million jobs below its peak in February 2020. The U.S. Chamber of Commerce urged the government to scrap the weekly unemployment subsidy, but the White House dismissed complaints the generous unemployment checks were causing worker shortages.

"It's clear that there are people who are not ready and able to go back into the labor force," Treasury Secretary Janet Yellen said. "I don't think the addition to unemployment compensation is really the factor that is making a difference."

Graphic: Nonfarm payrolls - https://graphics.reuters.com/USA-STOCKS/ygdvzowqkpw/nfpr.png

Twelve months ago, the economy purged a record 20.679 million jobs as it reeled from mandatory closures of nonessential businesses to slow the first wave of COVID-19 infections. That plunge could have thrown off the model that the government uses to adjust the data for seasonal fluctuations, resulting in the April payrolls number being below forecasts.

Unadjusted payrolls increased by 1.089 million jobs after rising by 1.176 million in March.

"We have warned frequently that the COVID-19 shock last spring would echo through the seasonally adjusted data and cause significant volatility," said Scott Ruesterholz, portfolio manager at Insight Investment in New York. "That is likely what is happening with this report."

The report did not change expectations that the economy entered the second quarter with strong momentum and was on track for its best performance this year in almost four decades. Timely labor market indicators, like new claims for jobless benefits, which last week dropped below 500,000 for the first time since the pandemic started, suggest payrolls will pick up.

Stocks on Wall Street were trading higher. The dollar was weaker against a basket of currencies. Prices of longer-dated U.S. Treasuries fell.

ROBUST DEMAND

With more Americans vaccinated, many states have lifted most restrictions on businesses. That, together with $1,400 stimulus checks sent to qualifying households in March, unleashed pent-up demand. Supply chains were already strained by the shift in demand toward goods from services during the pandemic.

The burst in demand contributed to the economy's 6.4% annualized growth pace in the first quarter, the second-fastest since the third quarter of 2003. With households sitting on at least $2.3 trillion in excess savings, economists were steadfast in their expectations for double-digit growth this quarter.

"The only thing keeping job gains down is supply, not demand," said Joel Naroff, chief economist at Naroff Economics in Holland, Pennsylvania. "The economy is racing forward and that is what we should focus on." 

Graphic: U.S. labor market by sector - https://graphics.reuters.com/USA-ECONOMY/UNEMPLOYMENT/xegpbagnqvq/USA-ECONOMY-LABOR-SECTOR.jpg

Leisure and hospitality gained 331,000 jobs in April, with hiring at restaurants and bars accounting for more than half of the increase. Government employment picked up as some school districts hired more teachers for in-person learning.

But temporary help services employment dropped by 111,400 jobs. Manufacturing employment fell by 18,000 jobs, with payrolls at motor vehicle manufacturers dropping 27,000. A global semiconductor chip shortage has forced production cuts.

In the transportation and warehousing industry, employment for couriers and messengers fell by 77,000. Retail employment dropped by 15,300 jobs. Construction payrolls were flat. With workers scarce, employers boosted wages and increased hours for employees. Average hourly earnings jumped 0.7% after dipping 0.1% in March. The average workweek rose 0.1 hour to 35 hours.

The unemployment rate rose to 6.1% in April from 6.0% in March as 430,000 people entered the labor force. The jobless rate has been understated by people misclassifying themselves as being "employed but absent from work."

Without this misclassification, the unemployment rate would have been 6.4% in April. The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, climbed to 61.7% from 61.5% in March. It was, however, lifted by men. Women, who account for most of the at least 4 million people still outside the labor force, dropped out.

That could bolster President Joe Biden's plan to spend another $4 trillion on education and childcare, middle- and low-income families, infrastructure and jobs. It also supports the Federal Reserve's ultra-easy monetary policy stance.

"The road to full employment may be a bit longer than we all thought," said Scott Anderson, chief economist at Bank of the West in San Francisco.

U.S. hiring takes big step back as businesses scramble for workers, raw materials
 

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Comments (10)
Catharine Varady
Catharine Varady May 07, 2021 6:00PM ET
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for me the number is to counter yellen's recent comment to keep the usd low. it supposedly show that powell is correct, economy is not overheating and uneven jobs creation. and the real numbers will be released in phases so to show powell is right thus stock market flies and usd low. in california alone, i sense the jobs created is more than figure released.
Joseph Biden
Joseph Biden May 07, 2021 3:24PM ET
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Who would want to work? I am giving people free welfare handouts so they can live in lazy poverty. I am Joseph Biden, if you ask me for ID then you are racist.
Mart Bab
Rubberduck1973 May 07, 2021 3:24PM ET
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We all now know la zy people like you wouldn’t
Mart Bab
Rubberduck1973 May 07, 2021 3:24PM ET
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Luckily the majority aren’t la zy
Paul Richard
Paul Richard May 07, 2021 12:58PM ET
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YES, the haters have awoke from their slumber this morning! So sad that they pulled their money out of stocks too early. But the market did not need their small portfolios to reach record highs.
Connecticut Yankee
A_Jaundiced_Eye May 07, 2021 12:39PM ET
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Joe Biden's hero is FDR. Joe's going to match him - he's going to have his OWN Depression !
Joseph Armour
Joseph Armour May 07, 2021 12:24PM ET
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It is not a step back to have more jobs. It is merely a slow down in 'stated' expectation. Amazing how something positive can be cast as negative simply by manipulating peoples perception of it. Now ask yourself why the rich people media would do that.
ZS Beck
ZS Beck May 07, 2021 10:22AM ET
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Take away the unemployment gift and the government assistance, then you see, how many people will rush back to work...Most of the gig workers and Uber drivers sit home happily and collecting it. Wait for September when it expires, unless gifts continue for another year.
mat connors
mat connors May 07, 2021 10:04AM ET
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Labor shortages??? Quit paying people to stay home!! All small businesses are hurting for employees because the government pays more to be unemployed. Smh
Me comment
Me comment May 07, 2021 8:59AM ET
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The expectation need to be tempered until the economy actually picks up. The supply chain is still in turmoil so manufacturing jobs can't bounce back. Until the supplies start flowing freely goods can't be made and jobs won't be filled. Economics in't rocket science it all comes back to supply and demand. Right now there is demand but supply of raw materials isn't there yet so can't make the goods to fill the demand needs.
Ankit Jain
Ankit Jain May 07, 2021 8:51AM ET
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what happening is this that huge job in United States are their but they are competing with goverment freebies and goverment freebies is wining so far. either the companies have to pay more than freebies or people will state home now fed has to sit behind and see the market collapsing because this mean that United States will be giving freebies to 3 million people so be ready why Amercian are working foolish
Give Me The Money
GiveMeTheMoney May 07, 2021 8:51AM ET
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True!
Tom Car
Tom Car May 07, 2021 8:51AM ET
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Actually 16 millions lazy folks sitting at home getting freebies. This is killing economy grow. No way to find employees to fill any position. You will see all thise folks in September begging for a job
Catholic Man
CatholicMan May 07, 2021 2:34AM ET
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CORRECTION: It's likely a million jobs came back after being destroyed by democratic policies.
Chris Cummins
Chris Cummins May 07, 2021 2:34AM ET
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Trump's handling of Covid is what cost us dearly. Cleaning up his mess isn't easy but glad you are here to show us the way. Praise to your Dear Leader.
ben sc
ben sc May 07, 2021 2:34AM ET
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Chris Cummins Twitter is that>>>way
 
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