KEY DATA: Layoffs: down 20,548/ Claims: down 8,000
IN A NUTSHELL: “The turnaround in oil prices is also turning around the labor market data as layoffs are declining.”
WHAT IT MEANS: Tomorrow is Employment Friday, so any labor market data will be swamped once the numbers are released, but you can get some insight into the pressures that are developing by looking at things other than the unemployment rate. The latest employment numbers point to further tightening in the labor market. Layoff announcements had been soaring as the oil patch started drying up. To put things in perspective, Challenger, Gray and Christmas reported that for the first four months of this year, layoff notices rose by a little over 28,000 from the same period last year. Meanwhile, the energy sector’s announcements rose by nearly 57,000. About 30% of all layoffs were in Texas. In other words, except for the energy firms have been holding tightly to their workers. With the rise in oil prices, energy sector layoffs have largely stopped – and so have overall layoff announcements.
Despite the weaknesses in energy and related industries, jobless claims have been low and they stayed down. Keep in mind, layoff announcements don’t necessarily become layoffs. The rise in energy prices may reduce actual payroll cut backs. Jobless claims declined last week and the level remains so low that payroll gains are highly likely to accelerate as we go forward.
MARKETS AND FED POLICY IMPLICATIONS: Payroll cuts in mining and machinery (support industry for the energy sector) totaled 20,000 in April and there still was a 223,000 rise in total employment. Don’t be surprised if in tomorrow’s employment report, we see a lot smaller job loss in those two industries. That should help drive the total gain to well above what we saw last month. The Fed will be watching the employment report closely, not just when it comes to employment but also what is happening with wages. But the hourly wage number doesn’t account for lots of other, more imaginative ways businesses are compensating employees. When you consider total compensation, it is clear that the upward trend is accelerating. In today’s revised first quarter productivity report, inflation-adjusted compensation per hour soared at a 6.5% rate over the quarter and was up a decent 2.2% over they year. Labor costs are reflecting the tight labor market and if hourly wages in the employment report doesn’t reflect that yet, we should be asking if we should even follow that number. For businesses, it’s all about total compensation and that is what we need to watch. If investors are focusing on the right numbers, they will have to start thinking that Fed has all the ammunition needed to start doing what the members really want to do: Raise rates.