By Chris Cermak and Kasra Kangarloo

WASHINGTON (MNI) – The weaker-than-expected headline April payrolls
number released Friday left far from settled whether we are seeing signs
of a new slowdown in the U.S. economy, or simply consolidation of steady
improvement, that appears softer due to the overly ambitious job gains
at the start of the year.

For some economists, April’s numbers signal ongoing problems with
seasonal adjustments, fueled by an early Easter and unseasonably warm
winter weather. Other analysts look at last year’s spring slowdown and
wonder whether this could be deja vu all over again, in the words of
Yogi Berra.

Nor has the latest report settled the key debate over whether the
Federal Reserve should or will consider a fresh round of quantitative
easing to give employment another lift. Most analysts seem to think the
report may increase talk of QE3 but note the bar remains high for the
Fed to actually pull the trigger.

Overall non-farm payrolls rose 115,000 (130,000 private) which
marked the lowest monthly level since November and came below
expectations in MNI’s survey of a 165,000 gain. But upward revisions
totalling 53,000 to the prior two months left the market reaction muted.

“On balance, this report leaves us exactly where we were before
today, in a sort of economic limbo,” Stephen Stanley of Pierpont
Securities said in a research note. “Conditions are not weak enough to
allow the doves at the Fed to give the markets yet another liquidity
hit, as they crave. However, we are far from out of the woods, as GDP
growth is right around trend and labor market slack is not being
absorbed nearly fast enough to please policymakers (or anyone else).”

The mixed employment bag — together with the lower-than-expected
2.2% GDP print for the first quarter — leaves economists and traders to
waffle for the time being and hope May’s payroll report brings more
clarity, with forecasts likely to range as widely as they did in April.

Until some clarity comes, just how bad or good the situation is
depends on your perspective, and which longer term trend you use to back
up that naturally sunny/downcast disposition.

For Credit Suisse, the downshift after average winter gains of
250,000 “should not be a huge surprise.” The April figures signal
“consolidation, not the start of a prolonged slowdown. Job growth ran
too far too fast ahead of private sector final demand for a period of

Scott Brown, economist at Raymond James, also makes the case that
the mild winter months effectively stole job gains from the spring
months. Though his overall assessment was somewhat less optimistic — he
still described the report as largely a disappointment — he also added
that roughly the same trend was seen last year due to the impact of
gasoline prices on small business hiring.

“It’s probably going to be a mixed bag,” Brown told MNI in a
telephone interview. “You’ll get a couple strong months, you’ll get a
couple weak months, it’s essentially more of the same as last year.”

Though slightly more to the sunny side, Russel Price, economist at
Ameriprise Financial Inc, also noted the temporary jump in gasoline
prices as the real culprit in this month’s figures. He added that
economic fundamentals are still strong and should continue to improve
off consumer spending.

“I think (the jobs market) will continue to improve, primarily
because consumers are generally still spending,” Price told MNI in a
telephone interview. “With the decline in gasoline prices, consumer
confidence should rise further, so eventually businesses will have to
hire to respond to that increase in demand.”

Not so rosy, the Royal Bank of Scotland in a research note sees the
numbers “confirming that the momentum of the labor market seen around
the turn of the year has faded.”

It notes private payroll gains are about on a par with the average
144,000 pace seen from June-November 2011 and marks a pace “more
consistent with an economy expanding close to trend.”

Goldman Sachs also takes the more negative view, noting “if there
was one consistent message in today’s report it was weak growth” and a
“loss of momentum.” While there was clearly some weather payback,
Goldman says “underlying job market weakness explains a little more of
the below-consensus payroll gain than we had expected.”

The sectoral breakdown of job gains/losses offers even more of a
mixed bag. On the positive side, retail jobs increased 29,300 after
falling 21,000 in March, while a BLS economist said a 16,600 drop in
transportation could partially be accounted for by school bus driver
layoffs, as the Easter school holiday fell in the reference period.

CRT Group’s David Ader notes that 83,000 jobs from 115,000 added
came from retail, temporary hires and education that are not exactly
“high quality jobs.” Ader says “this is discouraging and support the
idea that the pace of growth has moderated significantly.”

Federal Reserve Chair Ben Bernanke has seemed to fall somewhere
closer to the “consolidation” camp in the past month, though all eyes
will be on whether Bernanke and other Fed officials change their tone in
the coming weeks.

Bernanke told reporters in his April press conference that weather
likely “made January and February artificially strong and March
artificially weak,” and it is more likely that jobs are growing at a
150,000 to 200,000 pace. Most analysts would agree QE3 is unlikely if
that kind of pace holds in coming months.

RBS says “the hurdle additional Fed accommodation this summer
remains high,” though the April report “will keep hopes for QE3 alive.

Yet BNY-Mellon in a note says the “the headline disappointment
increases the likelihood that Bernanke will move forward with QEIII
later this summer.” This is true even if the April slowdown has “all of
the hallmarks of a correction in a longer-term uptrend.”

At the very least, all sides can agree that the decline in the
unemployment rate to 8.1% from 8.2% in March is not a good sign, since
it was driven by another drop in the labor force participation rate to
63.6%, the lowest level since 1981.

Nomura says the falling participation rate in itself is something
that could “bring more discussion” of QE3 into the Federal Open Market
Committee’s June meeting. The report “definitely highlights the
challenges for monetary policy: the fact that the unemployment rate fell
illustrates in a sense that there is reduced “slack” in the labor
market, but it appears to be falling for the ‘wrong’ reasons.”

Christoper Low of FTN Financial agrees the falling participation
rate, together with weak hourly earnings that were virtually unchanged
in April, “are — or should be, anyway — the most important aspects of
this report” from the Fed’s point of view.

–Chris Cermak and Kasra Kangarloo are reporters with Need to Know News

** MNI Washington Bureau: 202-371-2121 **