US economy likely created nearly a million jobs in April as Covid-19 restrictions eased

US employers likely hired nearly a million workers in April as they rushed to meet a surge in demand, unleashed by the reopening of the economy amid rapidly improving public health and massive financial help from the government.

The Labor Department's closely watched employment report on Friday will be the first to show the impact of the White House's $1.9 trillion Covid-19 pandemic rescue package, which was approved in March. It is likely to show the economy entered the second quarter with even greater momentum, firmly putting it on track this year for its best performance in almost four decades.

"We are looking for a pretty good figure, reflecting the ongoing reopening we have seen," said James Knightley, chief international economist at ING in New York. "With cash in people's pockets, economic activity is looking good and that should lead to more and more hiring right across the economy."

According to a Reuters survey of economists, nonfarm payrolls likely increased by 978,000 jobs last month after rising by 916,000 in March. That would leave employment about 7.5 million jobs below its peak in February 2020.

Twelve months ago, the economy purged a record 20.679 million jobs as it reeled from mandatory closures of nonessential businesses to slow the first wave of Covid-19 infections.

April's payrolls estimates range from as low as 656,000 to as high as 2.1 million jobs. New claims for unemployment benefits have dropped below 500,000 for the first-time since the pandemic started and job cuts announced by US-based employers in April were the lowest in nearly 21 years.

Also arguing for another month of blockbuster job growth, consumers' perceptions of the labour market are the strongest in 13 months. But the pent-up demand, which contributed to the economy's 6.4 per cent annualized growth pace in the first quarter, the second-fastest since the third quarter of 2003, has triggered shortages of labour and raw materials.

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From manufacturing to restaurants, employers are scrambling for workers. A range of factors, including parents still at home caring for children, coronavirus-related retirements and generous unemployment checks, are blamed for the labour shortages.

"While we do not expect that lack of workers will weigh noticeably on April employment, rehiring could become more difficult in coming months before expanded unemployment benefits expire in September," said Veronica Clark, an economist at Citigroup in New York.

Payroll gains were likely led by the leisure and hospitality industry as more high-contact businesses such as restaurants, bars and amusement parks reopen. Americans over the age of 16 are now eligible to receive the Covid-19 vaccine, leading states like New York, New Jersey and Connecticut to lift most of their coronavirus capacity restrictions on businesses.

Broad employment gains

Solid gains were also expected in manufacturing, despite a global semiconductor chip shortage, which has forced motor vehicle manufacturers to cut production. Strong housing demand likely boosted construction payrolls.

Government employment is also expected to have picked up as school districts hired more teachers following the resumption of in-person learning in many states.

Robust hiring is unlikely to have an impact on President Joe Biden's plan to spend another $4 trillion on education and childcare, middle- and low-income families, infrastructure and jobs. Neither was it expected to influence monetary policy, with the Federal Reserve having signaled it is prepared to let the economy run hotter than it did in previous cycles.

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Millions of Americans remain out of work and many have permanently lost jobs because of the pandemic.

"Nobody knows what the economy is going to look like post Covid," said Steven Blitz, chief US economist at TS Lombard in New York. "There is a stubbornly high number of people who have been permanently displaced. The (spending) plans are about giving the economy a higher trajectory of growth so that these people can be hired sooner rather than later."

The unemployment rate is forecast dropping to 5.8 per cent in April from 6.0 per cent in March. The unemployment rate has been understated by people misclassifying themselves as being "employed but absent from work."

To gauge the recovery, economists will focus on the number of people who have been unemployed for more than six months as well as those out of work because of permanent job losses.

The labour force participation rate, or the proportion of working-age Americans who have a job or are looking for one, likely improved last month, though it remained below its pre-pandemic level. More than 4 million people, many of them women, dropped out of the labour force during the pandemic.

With the lower-wage leisure and hospitality industry expected to dominate employment gains, average hourly earnings were likely unchanged in April after dipping 0.1 per cent in March. That would lead to a 0.4 per cent drop in wages on a year-on-year basis after a 4.2 per cent increase in March.

"We will be watching average hourly earnings very closely for signs that difficulty in hiring qualified workers is beginning to boost compensation," said David Kelly, chief global strategist at J.P. Morgan Asset Management in New York.

"If tightening labour markets boost wage growth, then the inflation bounce which the Fed is anticipating to be modest and transitory could turn out to be stronger and longer-lasting, leading to earlier Fed tightening."

The anticipated drop in wages will have no impact on consumer spending, with Americans sitting on more than $2 trillion in excess savings. The average workweek was forecast steady at 34.9 hours.