U.S. non-farm payrolls rose 164k in April, below consensus of a 193k gain. Revisions over the prior two months saw an additional 30k jobs tacked onto first quarter job growth.
The goods producing sector added 49k jobs in April, mainly due to ongoing robust hiring in the manufacturing sector, while hiring in the construction sector rebounded. The private services sector added 119k jobs, with professional and business services (+54k), and the education and health industries (+31k) contributing most to the sectoral aggregate.
After five consecutive months of remaining unchanged at 4.1%, the unemployment rate fell to 3.9%. The labor force fell by 236k, the second consecutive month of decline. As a result, the labor force participation rate ticked down a tenth of a point to 62.8%, while that of the core-working aged (25 to 54) participation rate ticked down by the same amount to 82%. The participation rate for core-working aged men has ticked up to 89.3% and is back to its post-crisis peak, but the volatility in core-working aged women’s participation rate is keeping a lid on the aggregate (see our recent report on the importance of boosting the core-working women’s participation rate up). About 95.7 million Americans are not in the labor force, a new all-time high, and likely a reflection of the retiring baby boom cohort.
Wage growth decelerated in April, rising just 0.15% (previously: +0.2%). On a year-on-year basis, average hourly earnings held steady at 2.6%.
Key Implications
Although weather-related volatility at the start of the year may still be unwinding, April’s payrolls suggest that the U.S. job market still remains fairly hot. Today’s report may have disappointed market expectations, but are those rooted in reality? A 164k gain in jobs remains above the roughly 100k jobs need to absorb the average growth in the labor force.
A sub-4.0% print for the unemployment rate best exemplifies how tight the demand for labor is getting in the U.S. With the economy performing better than expected in the first quarter and likely to expand at a 3% average pace over the next few quarters, wage pressures should gradually build.
Although the FOMC decision this week was largely uneventful, the focus of the Committee is likely to remain on the evolution of wage and prices. There are broad signs that both are heating up, and a stimulus-fueled economy should only encourage further firming in these measures. So long as downside risks fail to materialize, we anticipate that the FOMC is on pace to continue to raise rates. We expect two more 25 basis point hikes in 2018.
