The US labour market report was decent in March. Nonfarm payrolls rose by 215K; the unemployment rate edged up to 5%, reflecting a rise in labour force participation. Due to the rise in supply, the labour market is no longer tightening. This means wage growth is moderate; It increased by 0.3% but after falling -0.1% the previous month. We continue to expect the Fed to keep rates on hold this year.160401-US-Employment-March-Report-fv.pdf (107 KB)
More people join US labour market…
In March job growth remained reassuringly solid. Nonfarm payrolls increased 215K down from 245K in February. The message from the household survey was generally favourable. The unemployment rate increased to 5%, but that reflects higher labour supply. Indeed, the labour force participation rate increased by one tenth to 63%. This is the fourth monthly increase and partly explains why unemployment has been hovering around 5% in the past months.
…but less luck for part time workers looking for full time jobs
Meanwhile part-time workers willing to work full time edged up by one tenth to 9.8%. This was a bit disappointing, since this indicator had also been falling lately. This was a sign of a broader dynamism in the labour market, since more workers both from outside the labour force and within the labour market were able to access full time jobs.
Wages firm, but party due to payback
Average hourly earnings showed some upward pressure increasing by 0.3%, but that was after falling by -0.1% the previous month. The annual increase of average hourly earnings was 2.3%, following 2.2% growth in March. Above trend job-growth has not been fully translating into wage pressure as the unemployment rate is stable. This month’s increase in wage growth is partly payback for weak wage growth in February and the trend remains moderate.
Goods-sector continues to show weak hiring
Turning to the details of the report, these were mixed. Hiring in the goods-producing sector showed a further rise in lay-offs in the manufacturing sector (-29K), while the construction sector continues to add jobs (37K). Meanwhile the service-producing activities showed strong growth (215K), mainly in retail trade and professional business services.
We expect the Fed to remain on hold, primarily as a result of downside risks
We continue to expect the Fed to remain on hold this year, primarily because of concerns about the global economy and the weaker pace of growth of the US economy. Federal Reserve Chair Yellen in a speech held a few days ago, at the Economic Club of New York, underlined her concerns about global developments. She mentioned that the improvement in the labour market in the past two years was considerably faster than expected. However, she suggested that this pace of improvement could be slower if foreign developments were to affect the US economy more adversely. She also emphasised that there is more slack in the labour market than one would surmise by looking at the employment rate alone. Finally, she was considerably cautious in her tone regarding that adjustment of rate policies. She mentioned that this caution was warranted because the federal funds rate was so low and as a result of the downside risks to the global economy.