Headline nonfarm payrolls rose by 160,000 in April, versus an anticipated 200,000. Meanwhile, the March and February revisions were lower to 208,000 and 233,000, respectively. The unemployment rate remained at 5.0% in large part because of the decline in the participation rate was lower at 62.8%, from 63.0%. There was a large 562,000 increase in the group classified as “not in the labour-force,” following a decline of 206,000 in March; this was the first increase following six consecutive monthly declines. The U6 unemployment rate (an expanded measure of unemployment that takes into account marginally attached and part-time workers) was lower at 9.7% in April. The household survey showed an outright decrease of 316,000 jobs in the month, following a strong gain of 246,000 in March and 530,000 in February. Meanwhile, the adjusted household survey (the BLS’s attempt to make it more comparable to the payroll survey) pointed to a decrease of 293,000 in April, well below March’s change of 286,000.
Private nonfarm average hourly earnings were 0.3% higher in April (0.2% for production and nonsupervisory workers) after a 0.2% rise in March. Annually, they are now 2.5% higher (2.5% for production and nonsupervisory workers). This was another trend increase in workers’ pay, though wages are still only showing very moderate upward pressure. Private aggregate weekly hours worked for production and nonsupervisory workers were 0.4% in the month, better than the fall of 0.2% in March; they are also 2.1% higher on a year ago. The 160,000 change in April’s payrolls was largely due to professional and business services (65,000), education and health services (54,000), leisure and hospitality (22,000), and finance (20,000). Any weakness again came from retailing, where there was a 3,000 decline in jobs after a loss of 39,000 in March. Also, government payrolls fell by 11,000 following a 24,000 rise. Please see the attached chart and table for further details. Meanwhile, the mean duration of unemployment was again lower at 27.7 weeks, from 28.4 weeks in March.
April’s employment report suggests that employment growth may start moderating from here following an average gain of 236,000 over the last 12 months. This would not be surprising with the unemployment rate now at/just above the natural rate, implying we are near relatively full employment. Importantly, this assumes that the participation rate and the employment-to-population rate do not increase all that much more as employers find it more difficult to fill vacancies. Hence, this month’s increase in the participation rate was a bit of a step-back in what has been a very encouraging trend increase (from 62.4% to 63.0% in March and now back to 62.8%). Hopefully, this is simply volatile data, as the continued strength in the labour market, coupled with improving pay, should continue to draw workers back into the labour-force. From September to March there was an increase in the labour-force of 2.5 million. It is extremely important for the Fed to see this continue, as a large pool of returning workers means less immediate wage pressure, which should allow it to keep rates lower for longer and, in turn, allow for a more robust recovery in employment. Wage inflation on the whole, meanwhile, remains subdued relative to what would have been expected with an unemployment rate at 5.0%. The next FOMC meeting is June 15, and while there is another employment report before then, we continue to believe that less is more and the Fed should be in no hurry to raise rates.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.