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Employment Report: The Private Sector Is in Good Health

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For the past several years, it's been difficult to get excited about the monthly employment reports issued by the Bureau of Labor Statistics. Too frequently, the releases have contained unrelenting tales of woe: rising unemployment rates, falling wages and massive job cuts. But the tide has slowly been shifting over the past year. And the April report, issued this morning, does contain some unambiguously good news: 244,000 jobs were added overall. The private sector is creating jobs across the board, under its own power. And in April, the vital services sector turned in its best performance since November 2006.

We've spoken before of what might be called a "conservative recovery." Month after month, the private sector adds jobs while the public sector cuts them. Yes, there has been a ton of stimulus in the form of cheap money from the Fed and higher levels of government spending on things like food stamps and defense. But that's not translating into higher levels of government employment.

In April, the private sector added 268,000 jobs. Over the past three months, it has added 760,000 positions, an average of more than 250,000 per month. More than 1.7 million private sector jobs have been created in the past 12 months. But in April, the government sector once again cut jobs, shedding 24,000 in the month. In the past year, the public sector has reduced employment by 404,000. And so there's a subtle shift in the dynamics of the labor market. More people are working than were a year ago, and a greater percentage of those working are in the private sector, 83.1 percent in April 2011 compared with 82.6 percent in April 2010. Socialism, this isn't. (In the accompanying, full-employment installation of the Daily Ticker, Aaron Task, Henry Blodget, Jeff Macke and Matt Nesto discuss the employment report.)

Another reason for optimism. In April, unlike in previous months, gains were distributed across the private sector. The recovery of manufacturing has been one of the stories of this expansion. And more people are employed in the endeavor of making stuff: 44,000 jobs were added in the goods-producing sector in April. But manufacturing is only a small part of the economy. If the U.S. is to experience a broad recovery in employment, we'll have to see significant gains in the much-larger services sector. That happened in April, with 224,000 jobs added. By my calculations, that's the biggest monthly gain in private sector service jobs since November 2006. The gains were broad-based: 57,000 in retail, 51,000 in professional and business services, and 46,000 in leisure and hospitality. Clearly, higher spending by businesses and consumers is leading to more hiring.

Another piece of good news. As has been the case, the job market is looking better in hindsight. For the two months after they are originally reported, the Bureau of Labor Statistics revises the data. The trend in the past year is for the data to be revised up. In March, BLS reported that the economy gained 192,000 jobs in February. That figure was revised to 194,000 in April, and was revised upward again today to 235,000. March, originally reported as a 216,000 gain, was revised to 221,000. The upshot: in hindsight, BLS discovered an additional 46,000 jobs it hadn't noticed before.

But — and there are always several large 'buts' when it comes to the employment reports — the release still contains plenty of data that shows why many Americans are justifiably sour on the job market. The addition of 244,000 net jobs is great, but nowhere near enough to make up for the massive losses of 2008 and 2009. The tale told by the establishment survey data — tallied by surveying individuals about their employment situation — is one of labor-market stress. In April, the unemployment rate ticked up from its elevated level, from 8.8 percent to 9.0 percent. Way too many people are sitting on the sidelines. While the size of the labor force ticked up ever so slightly in April, it is still 1.1 million smaller than it was a year ago. At 64.2 percent, the labor force participation rate remains low. The unemployment rate for teenagers is nearly 25 percent.

For those with jobs, the number of hours worked in an average week was essentially unchanged in April, at 34.3 hours. The combination of slack in the labor market and limits on overtime show that employers still have the upper hand. In April, wages ticked up a smidgen. But over the past year, average hourly earnings are up just 1.9 percent.

The bottom line: The best employment report in a long time still isn't sufficient to make a meaningful dent in the unemployment rate. Ten more months like April, and it will be another story.

Daniel Gross is economics editor at Yahoo! Finance.

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Follow him on Twitter: @grossdm. Email him at grossdaniel11@yahoo

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