Better Than Expected Economic Reports Signal the Economy Could Be Ready for a Fed on Pause

By Jennifer Yousfi
Managing Editor

The U.S. economy shed 20,000 in April, the Department of Labor announced in its monthly employment summary, bringing total unemployment up to 5% from 5.1% last month.

"We are in a recession, this report doesn't change that," Ellen Zentner, an economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, told Bloomberg News. Zentner had forecast a payrolls cut of 25,000. "What it does is support the idea that the downturn will be mild. Consumer spending isn’t going to tank."

Compared to the 240,000 jobs the domestic labor market shed in the first three months of the year, 20,000 is a marked improvement. The continued slump in the housing market and waning consumer confidence affected sectors tied to the housing market and consumer goods.

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"Employment continued to decline in construction, manufacturing, and retail trade, while jobs were added in health care and in professional and technical services," the DOL statement read.

The report was universally better than expected, as many economists had expected a slight increase in the unemployment rate to 5.2%. Many saw the moderation in job losses as affirmation that the U.S. Federal Reserve should pause in its rate-cutting campaign.

"For now, this employment trend is validating signals sent by the [Federal Open Market Committee] earlier this week to take a pause in rate cuts," wrote Stephen Gallagher, economist for Societe Generale SA (OTC: SCGLY), MarketWatch reported. The report "lessens the fears of a deep, or prolonged downturn in the economy."

In an unrelated report, the Commerce Department announced that domestic factory orders increased 1.4% in March on the heels of a 0.9% decline in February due largely to strong international sales. The weak dollar is helping to boost exports and offset weakening demand at home.

"The cross currents of a weak domestic economy and a strong export sector continue to keep activity from faltering sharply," Jonathan Basile, an economist at Credit Suisse Holdings Inc. (CS) in New York, told Bloomberg.

Again, the report was better than anticipated, as economists’ had expected an increase of only 0.2%.

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