Private Payroll Growth Moderates; Productivity Falls

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M. Spencer Green/APA job seeker fills out an application at a job fair last month in Chicago.
By Lucia Mutikani

WASHINGTON -- U.S. private employers in April added the fewest number of workers in more than a year, which could heighten worries about the economy's potential to rebound strongly from a first-quarter slump.

Private payrolls increased 169,000 last month, the ADP National Employment Report showed. That was the fewest since January 2014 and far below economists' expectations for a gain of 200,000 jobs.

March payrolls were revised down to show 14,000 fewer jobs created than previously reported. The report jointly developed with Moody's Analytics was released ahead of the government's more comprehensive employment report on Friday.

While it has a poor track record of predicting nonfarm payrolls, the ADP report poses a downside risk to economists' expectations for nonfarm payrolls growth of 224,000 in April.

Yields on U.S. Treasuries rose and U.S. stock index futures traded slightly higher after the data. The dollar was weaker against a basket of currencies.

A combination of cold weather, a strong dollar, port disruptions and deep spending cuts by energy companies, held down first-quarter economic growth to a 0.2 percent annual pace.

A jump in the U.S. trade deficit in March, however, suggests the economy actually contracted in the first three months of the year after expanding at a 2.2 percent pace in the fourth quarter.

Productivity Drops

In a separate report Wednesday, the Labor Department said nonfarm productivity fell in the first quarter as harsh winter weather weighed on output, pushing labor-related production costs to rise at their quickest pace in a year.

Productivity declined at a 1.9 percent annual rate after dropping at a revised 2.1 pace in the fourth quarter. That was the first back-to-back fall in productivity since 2006.

Economists polled by Reuters had forecast productivity, which measures hourly output for each worker, dropping at a 1.8 percent rate after falling at a previously reported 2.2 percent rate in the last three months of 2014.

The productivity drop, which mirrored the abrupt growth slowdown in the first quarter, is likely to be temporary. Still, the trend remains weak. Productivity rose 0.6 percent from a year ago.

Despite the weather disruptions, workers put in more hours in the first quarter. Hours increased at a 1.7 percent rate.

With hours outpacing a 0.2 percent pace of decline in output, unit labor costs increased at a 5 percent rate in the first quarter. That was the fastest pace since the first quarter of 2014.

Unit labor costs, the price of labor for each single unit of output, increased at a 4.2 percent rate in the fourth quarter. They rose 1.1 percent compared to the first quarter of 2014, a sign that wage inflation remains benign.

Compensation an hour increased at a 3.1 percent rate in the first quarter, also the quickest pace since the first quarter of 2014. Coming on the heels of a report last week showing a solid increase in labor costs in the first quarter, the rise in compensation suggests that wage inflation could be firming.

The steadily rising labor costs against the backdrop of weak productivity could squeeze corporate profits.

9 Numbers That'll Tell You How the Economy's Really Doing
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Private Payroll Growth Moderates; Productivity Falls
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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