- April’s nonfarm payrolls increased by 211K up from 79K the previous month; the unemployment rate edged down to 4.4%, from 4.5%
- April’s jobs report shows that the previous months weakness was temporary
- Wage growth increased to 0.3% in April, from a downwardly revised 0.1% the previous month, reaching a 2.5% yoy rate
- Low unemployment rate gives Fed more leeway to continue tightening
- We expect the Fed to continue hiking rates in June and September
US nonfarm payrolls recovers and adds 211K jobs in April
After a soft jobs report in March, nonfarm payrolls increased to 211K in April, up from a revised 79K the previous month. Net revisions in the prior two months amounted to -6K. This strong report suggests that temporary factors, including extreme weather conditions, were at play in March. The three months average gain of 174K is more indicative of the underlying trend in job growth. The unemployment rate edged down to 4.4%, from 4.5% the previous month. Labour participation fell slightly to 62.9%. Meanwhile, the broad U-6 underemployment rate fell further to 8.6% from 8.9%, giving further evidence of the labour market tightening. Monthly wages grew in line with expectations, increasing 0.3%, from a revised 0.1% the previous month and reaching a 2.5% yoy rate. This suggests that on average wage growth is not giving much steam, despite the tightening of the labour market.
Details show payback after the severe weather
There were some interesting industry-level developments. Construction grew only 5K and retail trade only recovered slightly (6K). These are sectors where adverse weather effects show up. Which could mean that they are still set to recover. Meanwhile, manufacturing job gains were also soft, adding only 6K jobs. The strong improvement in job gains came from the service-providing sector, which increased 173K in March from 54K the previous month. Given the increase in leisure and hospitality (55K was 9k), we see this as payback. In March hotel bookings appear to have been affected by the harsh weather conditions.
Jobs report underscores Fed’s view of improving labour market
The return to trend is likely to bolster the Fed’s plans to continue hiking rates this year. After some weak data in the first quarter, including GDP growth of 0.7%, this report should give the Fed more confidence to continue hiking rates. In its most recent statement the FOMC mentioned that they viewed the slowing in growth as likely to be transitory and continued to expect that with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace. The Fed expects to hike rates twice again this year. Meanwhile according to the Federal funds futures rate, the odds for a rate hike in June are now fully priced in after this jobs report. We still expect the Fed to continue hiking rates by 25bpts in June and September.