South-Western College Publishing - Economics  
April Jobs Creation Exceeds Expectations
Subject Job Creation
Topic Employment, Unemployment, and Inflation
Key Words

Jobs and Economic Growth

News Story

The Labor Department reported a 274,000 increase in jobs outside the farming sector for April. This employment gain is the fifth largest gain in the past five years. According to Bloomberg News, Wall Street analysts had expected only 174,000 new jobs for April.

The increased hiring suggests that any recent economic softness may have been only temporary. When coupled with slightly lower fuel costs, the good jobs report and the upward revision of the March job growth figures "suggests that the recent soft patch in the economy could prove to be short-lived," said David Greeenlaw, Morgan Stanley's chief U. S. fixed-income economist.

The current report suggests that available jobs increased across sectors, indicating a general economic improvement. Notable gains in job growth arose in construction, food services and health care. "That gives you a little more confidence in the numbers," said Louis Crandall, chief economist at Wrightson ICAP, a bond market research firm. He added, though, that "at the same time, it doesn't entirely eliminate the other, broader concerns that the headwinds of higher energy costs and rising interest rates may slow growth in the middle part of the year."

Long before employers seek new workers, they tend to increase the average workweek to meet production requirements. During April, the average workweek expanded by about 12 minutes to 33.9 hours, indicating that American businesses needed additional labor and may continue to hire.

Average hourly wages also increased in April. Average wages rose by 5 cents in April to $16, indicating better bargaining power for labor and contributing to better purchasing power for American households. Any increase in hiring helps to prop up household spending, and historically, consumer spending makes up about two thirds of economic activity. Thus, additional household income fuels economic growth.

While hiring was increasing, the number of discouraged workers--those unemployed workers who discontinue their job search when it appears that employers are not hiring--fell, indicating that workers were more likely to expect employment. Although previous months' figures have surged forward only to fall again, this month's report is a strong indication that American business is both poised and willing to invest in new jobs.

Questions
1.

Discuss the importance of new jobs to the economy, especially the mechanism of how households contribute both inputs and purchases to the economy.

2. Explain the notion of the discouraged worker. Can you think of any situations in which you or family members have become discouraged workers? What would it take to bring those individuals back into the workforce?
3. What conditions do you think are necessary for businesses to hire new workers?
Source Jennifer Bayot, "U.S. Economy Added an Unexpected 274,000 Jobs in April," The New York Times Online, May 6, 2005.

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