The jobs report is too bad to be true: The economy will be fine

Job creation in April fell far short of forecasts, but the recovery hasn’t run out of gas.

A sign advertising job openings at a restaurant in Detroit in May. Hiring in the hospitality and leisure sector was robust in April, but job growth overall was surprisingly weak.SARAH RICE/NYT

Yes, the April employment report was a bigger disappointment than Al Capone’s empty vault, with far fewer jobs created than forecasters had expected and the blowout gain in March revised significantly lower.

But no, the current economic boom — powered by vaccinations, the easing of COVID restrictions, and massive federal stimulus spending — hasn’t run out of gas. Not even close.

Employers added 266,000 jobs last month, an epic fail for economists, who expected something like 1 million workers to join the payrolls. The March increase, originally reported at 916,000 new jobs, was revised down to 770,000. The unemployment rate ticked up to 6.1 percent from 6 percent in March.

“This is a shocking report,” said Tony Bedikian, head of global markets at Citizens Bank in Boston.

What happened?

The pros who whiffed so badly are regrouping around several theories: Employers may have been constrained by supply-chain disruptions (a shortage of microchips is hurting auto makers, for example), as well as by difficulties finding enough workers to fill open positions.

With 9.8 million people counted as unemployed last month, it seems counterintuitive that new hires are hard to find.

But economists said some workers may not be vaccinated or feel their workplace isn’t safe yet. Others could be caring for sick relatives or children whose schools haven’t fully opened. Some employers have said there are people choosing to collect enhanced jobless pay rather than go back to work.

And let’s not forget that the economy suffered an unprecedented blow in March 2020 when the pandemic hit and more than 20 million jobs disappeared nearly overnight. The aftershocks will continue.

“It’s understandable, it’s going to take some time, you’re not just going to snap your fingers and get everyone back to work,” Diane Swonk, chief economist for the accounting firm Grant Thornton, told the New York Times. “It turns out it’s easier to put an economy into a coma than wake it up.”

More than one economist told me to expect the Labor Department to revise the April data upward next month.

“I’m in the camp of economists who doesn’t think you should ever extrapolate from one jobs report,” said Megan Greene, a senior fellow at Harvard University’s Kennedy School of Government.

Still, she said, the weak payroll numbers take some air out of concerns that a spike in inflation will force the Federal Reserve to raise interest rates sooner than it has signaled.

“It does give the Fed some reprieve on their dovish stance,” Greene said.

The reaction in financial markets was muted — especially given the ugliness of the surprise. The tech-heavy Nasdaq rose 0.9 percent Friday while stocks that tend to do better when the economy is strong posted smaller gains. The yield on the 10-year Treasury note dipped in the morning as concern about inflation eased, but ended the day little changed at 1.578 percent.

While it’s too soon to know for sure, figuring out exactly what’s driving the job market is more than an academic exercise.

“The answer has a lot of ramifications,” said Dec Mullarkey, managing director at SLC Management in Wellesley. “For example, policymakers who think stimulus is creating the wrong incentives for return to work may be reluctant to fund more.”

Congress in March approved the American Rescue Plan, a $1.9 trillion relief package pushed by President Biden that provided another round of stimulus checks, extended the amount and duration of jobless benefits, and allocated billions of dollars for vaccination distribution and aid to schools and state and local governments.

But the administration is pushing for even more: some $2 trillion for infrastructure and climate-change mitigation, and $1.8 trillion for aid to families, including free child care and community college tuition.

There was some good news in the April numbers.

More people have resumed searching for jobs, expanding the labor force. Hiring in the leisure and hospitality sector, so badly hurt by pandemic shutdowns, surged for a second straight month. The number of people employed part time even though they wanted full-time work declined.

John Leer, an economist at Morning Consult in Washington, D.C., said his firm’s regular polling showed consumers growing more cautious at the end of April. Their expectations for declines in income were rising and confidence was falling.”

There were some very serious warning signs,” Leer said.

Leer is forecasting continued strong growth through the second quarter, but sees the economy losing steam in the fall. Vaccine hesitancy and outbreaks will be a barrier to more people getting back to work, he said.

”As stimulus checks run out and vaccination rates plateau, it looks increasingly likely that the jobs recovery will play out slowly over the remainder of the year,” Leer said.

Mark Zandi, the chief economist at Moody’s Analytics, was more upbeat.

“The jobs report was a disappointment, but it hasn’t dented my optimism for jobs and the economy in coming months,” he said.

Zandi explained his gas-tank-half-full view like this: “The weakness in the jobs were in industries that we know are or will be very strong, such as construction, couriers, vehicle manufacturing, temp help, and education. I would expect this month’s disappointing job gain to be ultimately revised higher and for the job gains to kick back into high gear in coming months.”

April may be the cruelest month, but it’s usually forgotten in May.