The central puzzle of the U.S. labor market returned to the fore in April, payrolls rebounded strongly, the jobless rate fell to its lowest in a decade and yet wage increases slipped back to the weakest since last August.
Non-farm payrolls climbed 211,000, well ahead of the 185,000 median prediction and the unemployment rate skidded to 4.4 percent from 4.5 percent, reported the Labor Department in Washington, D.C. on Friday. This is the lowest the jobless rate has been since May 2007, belying the median estimate for a rise to 4.6 percent from 4.5 percent. The two month adjustment to payrolls subtracted 6,000 from the total, February rose to 232,000 from 219,000 and March dropped to 79,000 from 98,000. Payrolls averaged 176,000 in the first quarter, 6 percent below the 187,000 average for 2016.
Probably most important telltale for consumer spending was the increase in annual hourly earnings, which dropped back to 2.5 percent from 2.6 percent in March, missing the forecast for it to remain unchanged. Wages rose 0.3 percent in April as expected but the prior month's gain was halved to 0.1 percent from 0.2 percent under revision. For most workers substantive wage improvement remain scarce.
The labor force participation rate declined to 62.9 percent from 63.0 percent and average weekly hours, often an early indicator of pending employment gains, rose fractionally to 34.4 from 34.3 and helped to drive average weekly earnings to 2.6 percent annually, the best since December.
Inflation has been slowly moving higher over the past year. The most recent PCE rates of 1.8 percent overall and 1.6 percent core, are barely below wage gains and leave households with little extra cash and the economy strapped for the boost in consumption necessary to raise GDP above the 2.0 -2.5 percent range where it has been stuck since the recession ended eight years ago.
Today's payroll figures and evident strength in the job market will help the Federal Reserve maintain its tightening bias with another widely expected 0.25 percent increase at the June meeting and then again in December. On Wednesday the FOMC referred to the weak 0.7 percent GDP growth in the first quarter as "transitory" a judgement at least partially supported by the March payroll numbers.
Employment gains were centered in the service sector in April as they have been throughout the the recovery with very few exceptions. Leisure and hospitality added 55,000 positions, education and health services 41,000 and financial activities 19,000. Employment in retail recovered 6,300 jobs after suffering a revised loss of 27,400 in March. Factory employment added 6,000 jobs, half the pace of March's 13,000 gain. Construction work rose by 5,000 after 1,000 in March.
Total employment in the private sector, excluding jobs at all levels of government and governmental agencies, rose 194,000 last month, following a 77,000 gain in March. Overall government payrolls increased 17,000 in April from a 23,000 jump at the state and locallevel and a 6,000 decline at the Federal level.
Chief Market Strategist
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