Non-farm Payrolls and the US Recovery

Published by Filipe R. Costa on Mon, 09/05/2011 - 12:45

Last Friday the Labour Department reported that non-farm payrolls in US increased by 244,000 in April. The gain was the strongest in nearly one year. The private sector is the best performing sector, adding 268,000 jobs for the month.

At the same, the Labour Department also reported the unemployment rate, that came in higher than expected at 9.0%, and rising from 8.8% reported last month. The unemployment rate has been dropping continuously from last November when it was at 9.8%.

But is the economy creating sufficient jobs? And at the desirable pace?

Last week, we have seen the numbers for GDP growth reported at 1.8% for 1Q. Those numbers represent an anemic growth rate for the US economy. 8.8 million jobs were lost between the end of 2007 and early 2010, and only 1.8 million were recovered so far. Some believe that, in order for the jobs market to recover, it is needed to create between 300,000 and 400,000 jobs monthly. We are currently assisting at increases in the 200,000 level instead.

Non-farm payrolls are showing some improvement but we still believe that it is not sufficient for a full recovery at a decent pace. The unemployment rate is struggling to recover decently and lately we are assisting to rising unemployment claims. The near future will be crucial to better understand where we are currently sitting. Rising commodity prices may pose some threats in the recovery leading the economy sideways. Equities have been rising faster than the economy and the bull market will certainly need more real support before continuing this up trend.