In this publication: We expect April’s nonfarm payrolls to increase 195K in Friday’s job report. Preliminary job data for April somewhat mixed. We expect the pace of US job growth will moderate throughout the year, mainly as a result of weaker global demand and compressed profit margins.Global-Daily-Insight-5-May-2016-2.pdf (230 KB)
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US job market to remain solid in April, but more moderate job growth ahead
All eyes are on the US labour market report to be released on Friday. Despite the slowdown in US GDP growth, the US labour market continues to be one of the bright spots of the US economy. The nonfarm payrolls is one of the first reports to be released in this second quarter. We expect that nonfarm payrolls increased by 195K in April, slightly lower than consensus (200K) and unemployment remained at 5%. This is only a bit below the average of 209K jobs per month so far this year. However, we think that the pace of job growth will moderate throughout the year. Indeed, profit growth has been declining and slower global demand suggest that hiring will be somewhat less attractive than in previous years.
Preliminary US job data mixed in April
Preliminary job data are somewhat mixed. Jobless claims have been very upbeat lately, particularly the claims of the week associated with the reference period for the April employment report. Meanwhile the private employment report (ADP), released today, rose by 156K in April from a downwardly revised 194K the previous month. This was much lower than the consensus of 196K. The goods-producing employment in this report dropped 11K, down from a downwardly revised 5K. Manufacturing is one of the weakest sectors in the economy. We are not expecting major changes in hiring in the manufacturing sector in Friday’s job report. The employment index in April’s ISM manufacturing survey improved slightly compared to the previous month, but remains in contraction territory (49.2). However, another report released today, April’s ISM non-manufacturing index, showed an improvement in service industries. The index increased to 55.7 from 54.5 the previous month. The employment component was quite positive, increasing to 53 from 50.3. On balance, we think that April’s job report will remain strong, given the importance of service-producers in hiring.
Fed optimistic on labour market, but cautious on the US economic outlook
The FOMC’s April statement points to strong job growth as a sign of additional strengthening of the US labour market. Meanwhile, recent interventions of FOMC members since the April meeting remain cautious. Federal Reserve Bank of Atlanta’s Dennis Lockhart a non-voting member, mentioned that “the economy is throwing mixed signals”. He even questioned the reliability of certain data, likely US GDP. He suggested that doubts on the reliability of the data are legitimate. Meanwhile San Francisco Fed’s President Williams, also a non-voting member, said that he favoured some caution before jumping to conclusions based on first quarter data. He wants to see more data in the next couple of months, but he has a positive view on employment. We think that weak economic data are casting doubts on the strength of US economy and the need to hike rates further. As a result we expect Fed policymakers to keep rates on hold this year.