Must-know: Why US job creation is at its best levels since 2012

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BLS reports that job creation in the U.S. economy is the best since 2012, beating expectations

The Bureau of Labor Statistics released the Employment Situation report for April on Friday, May 2. One of the most keenly watched monthly labor indicators, the report estimated that the U.S. economy added about 288,000 jobs in the non-farm sector in April—the highest addition since January 2012, when the economy added 360,000 jobs.

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This was way ahead of consensus market estimates of about 215,000, and more importantly, payroll additions occurred more evenly among sectors and industries, which is very important for stable growth in the economy. April’s figure brought down the unemployment rate sharply from 6.7% in March to 6.3%. However, this is still short of the Fed’s target of full employment in the economy at 5.2% to 5.6%. To read about Fed Chairwoman Janet Yellen’s views on full employment in the economy, please read the Market Realist series Yellen projects full employment in 2016—the first in a decade.

Highlights from the BLS release: How did the labor market affect Americans in April?

  • The number of unemployed persons declined by 733,000 to 9.8 million, a far cry from the near-stagnant levels we’ve seen the past four months.
  • The unemployment rate declined to 6.3% in April from 6.7% in March. This is the lowest level since September 2008. This was primarily due to a fall in the labor force participation rate from 63.2% in March to 62.8% in April.
  • The number of long-term unemployed (those unemployed for 27 weeks or more) declined by 287,000, taking the TTM decrease to more than 900,000.
  • The number of discouraged workers—those who have stopped looking for work due to being unable to find employment—was practically unchanged at 783,000 compared to last year.
  • Teen unemployment declined the most (19.1%) among all age groups.

Highlights from the BLS release: Which businesses were hiring in April?

  • Professional and business services added the most jobs in April (77,000). Most of the job additions were in temporary help services (24,000) and the management of companies and enterprises (12,000).
  • The retail trade, at ~35,000 jobs added, was the second-best industry category in terms of job additions. Most of the jobs were added in F&B stores (9,000) and general merchandise stores (8,000). In a sector negative, electronics stores lost 11,000 jobs over the month.
  • Food services and drinking places (33,000), construction (32,000), healthcare (19,000), and mining (10,000) also reported strong hiring trends.
  • The average workweek and average hourly earnings for employees on private non-farm payrolls were unchanged from last month at 34.5 and $24.31, respectively.

Restaurants like Chipotle (CMG) have been hiring in 2014 as they seek to expand their footprint. Construction companies, too—particularly non-residential construction companies—have been hiring as new projects get underway with the spring thaw. A good way to gain exposure to construction sector companies is through ETFs like the PowerShares Dynamic Build and Construction ETF (PKB). PKB tracks the Dynamic Building and Construction Intellidex Index. The index provides exposure to U.S.-based construction and building materials companies like Quanta Services (PWR) and Vulcan Materials (VMC).

In the next section, we’ll discuss the implications of the report as well as market reactions for both stocks and fixed income ETFs like the Core Total U.S. Bond Market ETF (AGG). Please read on.

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