ANOTHER SURPRISE FROM THE MONTHLY EMPLOYMENT REPORT

GM STRIKE IMPACTS MARCH INCOMES AND EXPENDITURES

DRAMATIC REVISION IN THE LEADING INFLATION INDEX

Today's Labor Department Employment Situation report surprised Wall Street for the third month in a row. Analysts were expecting that nonfarm employment would grow by some 117,000 jobs during April. Instead, it grew by only 2,000 -- just .0016 percent. Today's report also revealed that, from March to April, the unemployment rate decreased from 5.6 percent to 5.4 percent.

At first glance these two statistics seem to be contradictory. How can payrolls rise by 2,000 while the unemployment rate falls by 0.2 percent? 0.2 percent of the total number of employed in March would be 268,000. The answer is that the two figures are derived from entirely independent surveys. The nonfarm payroll figure is derived from a survey of some 350,000 business establishments. The unemployment rate, however, is the result of a Bureau of Labor Statistics analysis of a monthly Bureau of the Census survey of approximately 60,000 households.

All of the jobs created in April were in the retail and other service sectors, Manufacturing lost 17,000 jobs and the construction industry, which usually picks up in the Spring, showed a payroll drop of 53,000.

Nonfarm payroll is one of the four components making up the Commerce Department's Composite Index of Coincident Economic Indicators (CEI).

In another report today, the Commerce Department's Bureau of Economic Analysis announced that Disposable Personal Income (DPI) and Personal Consumption Expenditures (PCE) rose during March. The March increases were attenuated by the General Motors strike, which reduced wages and salaries in the motor vehicle industry by approximately $9 billion. Nevertheless, DPI rose by 0.4 percent in March and PCE rose by 0.6 percent.

Personal Income minus Transfer Payments, another component of the CEI, rose by 0.4 percent from March to April.

Personal savings (DPI minus PCE) have been falling off in the last couple months. In January the savings rate was 5.2 percent. In February it dropped to 4.7 percent and, in March, it slipped still further to 4.5 percent.

In other news today, the Columbia University Center for International Business Cycle Research (CIBCR) reported that, from March to April, its Leading Inflation Index rose from a downwardly-revised reading of 102.2 to 102.4. The previously-reported March number was 104.4. So, this month's revision to a multi-month low of 102.2 drastically changes the interpretation of this indicator. The old number for March was the second consecutive monthly rise following thirteen consecutive months of decline, and seemed to be indicating a turn around. But, the new, lower, March number seems to indicate a resumption of the downtrend. We'll probably need to see a few more months of data on this before we can sort out what's happening.

Byline: Lafferty (MF Merlin)