Employment surges in April

The US economy added a huge 274,000 to non-farm payroll numbers in April, the largest single-month gain since October 2004. However, job creation remains concentrated in the services-providing sector, with overall payroll numbers up 229,000 on the month compared with an a 45,000 increase in the goods-producing sector. Within services, leisure and hospitality offered the greatest employment opportunities, but the gains were fairly evenly spread between private businesses and government sectors. By contrast, the goods sector continued to experience marked variations, with all the new jobs being offered in construction only; payrolls in manufacturing shrank for a third consecutive month. The unemployment rate, calculated from the household survey, held at 5.2%—unchanged from March. Although employment levels increased by a whopping 598,000 on the month, this was offset by an equally large rise in the size of the labour force.

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THE EIU VIEW
The latest employment gains are somewhat stronger than anticipated, and are well above the market consensus of a month-on-month gain of 200,000. In addition employment growth was slightly stronger than expected in the previous two months. However, the latest set of labour market statistics does not sit well with other indicators, most of which point to a gradual slowdown in economic activity. In terms of monetary policy implications, such a strong pace of job creation reinforces our view of more interest rate increases from the Fed rather than a pause in the current tightening cycle touted by other observers. We expect labour market conditions to improve gradually over the course of the year, resulting in a modest drop in the average unemployment rate to 5% from 5.5% in 2004.

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United - States: Non-farm payrolls
	Nov - 04	Dec - 04	Jan - 05	Feb - 05	Mar - 05	Apr - 05
Chg - 000’s	133	153	124	300	146	274
Rate	5.4%	5.4%	5.2%	5.4%	5.2%	5.2%

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SOURCE: EIU / INFO-e