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Friday Look Ahead: It's All About Jobs

The economy may have added fewer jobs in April than in March, and one culprit is rising gasoline prices.

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AP

The consensus among economists, who forecast monthly non-farm payrolls, is that 198,000 jobs were added, and that the unemployment rate will hold at 8.8 percent. That compares to March's gain of 216,000 jobs.

Gasoline prices now top $4 a gallon in many parts of the U.S. and are rising. The national average is $3.98 per gallon, up from $3.68 a month ago, according to AAA. Prices are more than $1 a gallon higher than at year end and have been rising steadily since September, when the national average was less than $2.80 per gallon.

"One way gasoline would translate into slower job growth is if the business whose customer is the household sector, if they believe their customers are going to have less to spend, sales expectations could come down, and at the smaller firms, maybe they'll be more cautious," said CSFB economist Jonathan Basile. Basile expects just 150,000 new jobs were added in April.

"To us, the leading indicators of employment have just kind of pulled back some. They haven't collapsed. 150,000 is not going to derail the train. It just means it's downshifted a little bit," he said.

The jobs number, released at 8:30 a.m. ET Friday, comes during a week when markets have already been fretting that economic news is starting to show weakness and rising interest rates in the emerging world could threaten growth. Certainly, Thursday's report that first time filings for jobless benefits jumped to 474,000 last week was a big concern. The number included some excuses, such as the timing of Easter, spring break filings and an emergency benefits program in Oregon, but still claims have been elevated for a month and are now at the highest level since August.

The service sector is one area of concern, and it has lagged manufacturing in adding jobs. Wednesday's Institute for Supply Management's non manufacturing survey showed a slowdown in service sector activity from March levels. The index fell to 52.8 from 57.3, though a reading above 50 still shows growth.

"The manufacturing sector is going to continue to look good. That's something that's been an ongoing story. The strength in the ISM manufacturing is consistent with an economy that's growing," said Diane Swonk, chief economist at Mesirow Financial.

Economists do expect to see some temporary impact from the auto industry shutdowns, resulting from supply chain disruptions related to the Japanese earthquake and tsunami.

Swonk expects 150,000 jobs were added in April, after factoring in the decline of about 15,000 public sector jobs.

"My guess is gasoline can be a factor in this. It's starting to take a toll in discretionary spending," she said.

NFIB Chief Economist William Dunkelberg said the service sector among small businesses is also showing signs of weakness. In the latest National Federation of Independent Business survey of nearly 2000 small businesses, there was a surprising increase in firings and a sluggish increase in hiring during April.

"We had almost twice as many firms reducing employment as increasing it. In general, sales have been weak," he said. Manufacturing and agriculture were the two areas doing the best and services, including retail, was doing the worst, he said. Eight percent of firms in the NFIB survey report increasing employment an average 2.6 employees per firm, while 15 percent plan to reduce employment an average 2.2 employees.

"It's really tough...There are many things weighing on everybody, and if you're not confident about the future you're not going to invest or hire. It's the firing that is worrying me because they're not seeing enough customers to justify the people they have," he said. Whether higher gasoline prices are the problem is hard to say but businesses do see prices going up in general, Dunkelberg said.

Pierpont Securities chief economist Stephen Stanley is more optimistic than some on the April employment report, and he expects to see 225,000 payrolls for April and an unemployment rate of 8.8 percent. But this level is below where he thought the economy would be at this point in the recovery. "It's going to continue to be a slow slog. People are aware of some of the headwinds we are facing right now. The oil price is the big thing," he said.

"I think consumer spending would have been stronger. I feel pretty strongly that oil prices, more specifically gasoline prices, they affect consumption pretty much in real time. A lot of people run a series of structural models that show the gasoline price shift in the economy with a three or four quarter lag. I think it's real time, And you can see it in the consumption figures. We should have had a much more rigorous recovery in consumer spending," he said.

The steep 10 percent decline in Nymex crude prices this week is ironic as it stems from concerns about slowing growth, Stanley said. He added though that if gasoline begins to drop, and the impact of Japanese supply chain disruptions reverse, both factors could be a tailwind for jobs. Stanley said the businesses hurt most by gasoline costs are retail and wholesale businesses that serve the consumer.

Barclays Capital chief U.S. economist Dean Maki said one encouraging sign is that consumers are not pulling back on spending on durables.

"We believe it's the rate of change of gasoline prices and headline inflation that really drives consumer spending growth. It's not a particular level. It's how fast prices are rising and how much of a drag they are providing on real income. Right now, we are seeing inflation rates that do cause a drag on consumer spending but not enough to cause consumer spending to contract," he said.

Maki expects to see April non-farm payrolls at 210,000 and he expects the unemployment rate to fall to 8.7 percent. He said the increase in aging baby boomers is one reason for the decline, as only 40 percent of the population 55 and over participates in the workforce, compared to 80 percent of the population between 45 and 54. The 55 and older group is growing quickly because of the huge amount of boomers in the population.

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