On Friday, the Labor Department announced that nonfarm payrolls fell by 20,000 in April, much less than economists' consensus estimates of 78,000 jobs lost, and significantly better than the average of 80,000 jobs lost each month in the first quarter. In addition, on Thursday, the Labor Department announced that weekly unemployment claims surged by 35,000 to 380,000, to the highest level in over five weeks. But in a statistical fluke, the unemployment rate fell to 5%, down from 5.1% in March, because more (362,000) unemployed workers got jobs in April than were laid off.

In other labor news, April wage inflation was in line with overall inflation, as average hourly rates increased by 3.4% in the last 12 months. However, that was offset by fewer hours worked and less overtime. The average work week fell to 33.7 hours and overtime in factories also fell. The bottom line is that, due to a weakening labor market, there is essentially no wage increase. As a result, further payroll losses are possible in May, so the May unemployment rate could rise.

One of the reasons more payroll losses are possible is due to the woes at Detroit's Big 3 auto makers. The U.S. manufacturing sector contracted for a third consecutive month in April as lower domestic demand put a damper on factory output, even as exports continued to rise. The Institute for Supply Management's (ISM) manufacturing index held steady at 48.6 in April, but that's still below a neutral reading of 50, which marks the inflection point between growth and contraction. Many manufacturers have been hit by rising energy costs and slowing U.S. demand, which have cut into order books. Some businesses have been able to offset these problems by selling more goods overseas as the weaker dollar makes U.S. goods seem more affordable to foreign buyers.