According to the latest employment report, the United States economy lost jobs in April but not as many as economists had expected. Nevertheless, the recent trend in the monthly employment number has been unusually weak considering that most of the other economic indicators have not provided clear signals that the economy has entered recession.
On Friday, the Labor Department reported that non-farm payroll employment declined by 20,000 in April. This was the fourth consecutive month that employment in the US has contracted based on the establishment survey.
Nevertheless, the report on Friday showed an improvement in the employment situation. The number of jobs lost in April was less than the average monthly rate of 80,000 job losses in the first three months of the year. It was also less than the estimate among economists for a loss of between 75,000 and 80,000 jobs.
The separate household survey provided an even more positive picture. According to this survey, the US economy gained 362,000 jobs in April after having lost 24,000 jobs in March. The unemployment rate fell to 5 percent in April from 5.1 percent the month before.
Earlier in the week, we already had an inkling that the employment situation might have improved in April. On Wednesday, employer services firm Automatic Data Processing reported that non-farm private employment increased 10,000 in April, up from 3,000 in March.
On Wednesday, the Commerce Department reported that real gross domestic product increased at an annual rate of 0.6 percent in the first quarter. This was the same rate as in the previous quarter and higher than what most economists had expected.
On Thursday, another Labor Department report had shown that initial claims for unemployment insurance rose to 380,000 last week but the four-week moving average fell to 363,750 from 370,250. Continued claims for unemployment insurance rose by 74,000 to 3.019 million, the highest level since April 2004.
Also on Thursday, the Institute for Supply Management (ISM) reported that its manufacturing PMI was at 48.6 in April, unchanged from the previous month. Its employment index though fell to 45.4 from 49.2. According to the ISM, a PMI over 41.1 generally indicates that the overall economy is expanding.
So on the whole, most of the data last week have been consistent with a slowing economy that is on the edge of a recession but not necessarily in one.
In fact, it is the monthly non-farm payroll employment number that appears to be showing unusual weakness. Even though the other indicators are showing that economic output as a whole may be holding up, the past few months' monthly employment reports are already showing job losses.
On a chart showing year-on-year change, monthly employment has plunged at a faster rate than is historically typical at this stage of a downturn compared to the other indicators, including the employment-related ones like unemployment insurance claims and the ISM employment index.
Many economists had expected -- or at least hoped -- that because job creation had been weak during the expansion phase of the current cycle, job loss would also be dampened during the downturn. There are few signs, however, that this is the case.
Nevertheless, there is cause for hope that further deterioration in the economy will be limited and thus further job losses will not be severe. Over the weekend, Warren Buffett, investor extraordinaire and chief executive officer of Berkshire Hathaway, told Bloomberg Television that the worst of the crisis on Wall Street is over. Many others have expressed similar views.
So, with the monetary and fiscal stimulus already in place, there is still a chance that the adverse impact of the credit crisis on the real economy could prove limited.