Highlights:
- April payroll employment rose 164k though this was less than the 193k expected going into the release. However, this shortfall was offset by March’s gain being revised up to 135k from 103k.
- The unemployment rate dropped more than expected to 3.9% from 4.1% in March. The April rate was expected to drop though more modestly to 4.0%
- The annual increase in wages in April held steady for the third consecutive month at 2.6% after jumping to 2.8% in January. Tight labour markets are expected to return this rate to an upward trend.
Our Take:
Payroll employment growth rebounded as expected in April though the reported 164k increase was below the 193k expected going into the report. Tempering this downward surprise was March’s initially-reported gain of 103k was revised up to 135k. Though the average increase over the two months is down from the 186k monthly average achieved over the previous twelve months, the slowing is likely more an indication of increasing difficulty securing new hires with labour markets operating at capacity rather than any weakening in demand for workers. The larger-than-expected reported drop in the unemployment rate to 3.9% from 4.1% provides additional evidence of tightening labour markets. This rate is significantly below what the Fed has characterized as full employment within a range of 4.3% to 4.7%. Broader measures of unemployment, such as the U6 measure, also dropped to 7.8% in April. That is down from 8.0% in March and below pre-2008/09 recession levels for the first time this cycle. Tightening labour markets argue that the current highly stimulative monetary conditions are no longer warranted and reinforces our forecast that the fed funds range, currently at 1.50% to 1.75%, will continue to be hiked 25 basis points each quarter through next year finishing 2019 at 3.25% to 3.50%.
