Jobs not out of the woods

U.S. unemployment fell to 5 percent in April from 5.1 percent in March, and employers cut just 20,000 jobs in the month, compared with 81,000 in March.

"While a decrease in payrolls is never good news, against the backdrop of a collapsing housing market, skyrocketing energy prices and a shaky financial system, [the] report showed some welcome resilience of the broader economy," JPMorgan economists write.

But while the news Friday cheered investors, history suggests the job rebound might not hold.

When there are four straight months of job losses — which occurred with the latest Bureau of Labor Statistics report — the downturn tends to linger, says Merrill Lynch economist David Rosenberg. It takes several months for a weak employment cycle to hit bottom after the first wave of job cuts. This would point to job losses through November with a bottom in March 2009, he writes.

"The historical record back to 1940 shows that four months in a row of negative payrolls proves to be a definitive trend — we go on to see another seven straight declines in a row before the employment downturn is over," he writes.

Investors have grown optimistic that the worst is over, sending the Standard & Poor's 500 index up 10.5 percent since its low of March 10. But if the jobs scenario plays out as it has in the past, stocks will bottom in late fall, five months before employment troughs, Rosenberg writes.

The Conference Board's Help-Wanted Advertising Index also looks bleak. It recently hit an all-time low. The index tends to predict the direction of the job market over the next four months, Rosenberg says.

"Do the math and you will see that means a further 2 to 3 million job losses ahead of us," he writes.