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Economic Week in Review: Jobs' spring surprise

May 03, 2013

An unexpectedly favorable jobs report was welcomed amid signs that the economy is still struggling. The signs, as is often the case, were conflicting. Consumers were more confident, productivity rebounded, the trade gap narrowed. But income growth was tepid, key gauges of business activity slipped, and government spending slumped. The Federal Reserve, meantime, said it would maintain its accommodative monetary policy, adding that it could always loosen it further.

For the week ended May 3, 2013, the S&P 500 Index rose 1.1% to 1,614 (for a year-to-date total return—including price change plus dividends—of about 14%). The yield on the 10-year U.S. Treasury note rose 8 basis points to 1.78% (for a year-to-date change of 0 basis points).

Jobs expand in April (and March and February)

The jobs picture took a turn for the better in April. The unemployment rate edged down to a four-year low of 7.5% and payrolls expanded by 165,000; both results were greater than expected. Even more favorable were the revisions to payrolls in January and—especially—February, which together totaled 114,000 new jobs. Job creation wasn't broad-based however: It came entirely from the service sector (despite a decline in service-sector business activity, described below) as payrolls declined among manufacturers and governments. Half the federal payrolls decline was from the U.S. Postal Service.

"The payroll numbers were certainly a welcome surprise, including the positive revisions," said Andrew J. Patterson, a Vanguard economist. "Average job growth since the beginning of 2013 stands close to the 200,000 number we would need to see for meaningful longer-term declines in the unemployment rate."

U.S. unemployment rate

Income slides but consumers spend

Personal spending rose faster than expected in March, as colder-than-normal weather inflated utility bills even as spending on manufactured goods declined. Personal income, which grew by a slower-than-expected rate of 0.2% in March, continues its volatile pattern. Compared with a year ago, "real" (inflation-adjusted) disposable income fell to just below 1%, but real spending growth was about 2%, aided by a low savings rate (2.7%).

Growth in benefits slows

Growth in the employment cost index, the broadest measure of compensation costs, was essentially unchanged in the first quarter compared with the prior three months. For the 12 months ended March 2013, the index rose 1.8%, slightly ahead of inflation. (Consumer prices rose 1.5%.) Both the quarter and 12-month periods were marked by a substantial slide in benefits growth, although the figure may be revised because of a data error involving sales and office workers' benefits.

Confidence continues to zig and zag

The Conference Board's index of consumer confidence continued its roller-coaster ride of recent months. After slumping from 68.0 in February to 61.9 in March, the index bounced up to 68.1 in April, primarily because of an improvement in consumers' expectations about the economic outlook and their income prospects. "The size of that swing and the fact that it came mostly from the survey's more volatile ‘expectations' category rather than its ‘present conditions' component are signs of continued uncertainty," Mr. Patterson said.

Key business-activity gauges decline

The Institute for Supply Management's manufacturing index fell for the second month in a row, to 50.7. (Separately, a report showed factory orders fell substantially in March, largely due to a sharp drop in orders from Boeing, and February's figure was revised downwards.) The ISM's service-sector survey dipped in April, to 53.1, its second straight month of decline.

State and local governments pull back construction spending

Construction spending dropped sharply, and unexpectedly, by 1.7% in March, as state and local governments—continuing to feel the after-effects of the recession and perhaps reflecting the federal-level "sequester"—cut back on spending. Compared with a year earlier, public construction was about 5% lower and private construction about 10% higher (including an 18% increase in private residential construction).

Productivity rebounds in the first quarter

Nonfarm business productivity, a barometer of the economy's overall output of goods and services per hours worked, rose 0.7% in the first quarter, which was about half the rate that was generally expected. The result, nevertheless, was a significant turnaround compared with the 1.7% decline in the fourth quarter. The two factors powering the increase were a jump in output and a slowing in the growth of hours worked. The resulting rise in productivity helped slow the growth in unit labor costs, a closely watched inflation gauge.

Trade balance narrows more than expected

Exports and imports declined in March, but imports fell by a greater amount. The result was a greater-than-expected narrowing of the trade deficit. The broad-based decline in exported goods reflected continued weak demand from recessionary Europe and continued declines in the average daily barrels of crude oil imports (the lowest in 17 years) helped push the trade gap to its lowest level in three years.

The economic week ahead

The lone report next week is consumer credit, to be released Tuesday.

Summary of major economic reports
Date Report Actual
expected value
10-year note yield S&P 500 Index
April 29 Personal Income (March)
Source: Commerce Department
+0.2% +0.4% 0 bp +0.7%
  Personal Spending (March)
Source: Commerce Department
+0.2% +0.1%    
April 30 Employment Cost Index (1Q)
Source: Labor Department
+0.3% +0.5% 0 bp +0.2%
  Consumer Confidence (April)
Source: The Conference Board
68.1 60.8    
May 1 ISM Manufacturing Index (April)
Source: Institute for Supply Management
50.7 51.3    
  Construction Spending (March)
Source: Commerce Department
–1.7% +0.7% –4 bp –0.9%
  Federal Open Market Committee
Source: Federal Reserve Board
May 2 Nonfarm Productivity (1Q annual rate)
Source: Labor Department
+0.7% +1.5% 0 bp +0.9%
  Unit Labor Costs (1Q annual rate)
Source: Labor Department
+0.5% +0.1%    
  Initial Jobless Claims (week ended April 27)
Source: Labor Department
324,000 346,000  
  U.S. Trade Balance (March)
Source: Commerce Department
–$38.8 billion –$42.2 billion    
May 3 Unemployment Rate (April)
Source: Labor Department
7.5% 7.6% +12 bp +1.1%
  Nonfarm Payrolls (April)
Source: Labor Department
+165,000 +150,000    
  Factory Orders (March)
Source: Commerce Department
–4.0% –2.5%  
  ISM Index (April)
Source: Institute for Supply Management
53.1 54.1  
      Weekly change +8 bp +2.0%

bp=basis points. 100 basis points equal 1%. For example, if a bond's yield rises from 5.0% to 5.5%, the increase is 50 basis points.


  • The economic statistics presented in this report are subject to revision by the agencies that issue them. For more information on the reports mentioned in this article, read Guide to major U.S. economic reports.
  • All investing is subject to risk, including possible loss of the money you invest.
  • Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
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