On balance, today’s jobs report fits nicely with the view recently outlined by Fed chairman Yellen. The labour market continues to improve at a moderate pace, while still being consistent with weak wage growth and hence a highly accommodative monetary policy.
Thus, with a strong rise in payrolls the report is generally positive for the growth outlook, but tame earnings data will reinforce the case of Fed officials arguing that tightening is still a long way away.
Market implications
The surge in April payrolls (and the warmer weather) should rouse the bond bears and support the USD, in line with the initial market reaction after the report was released.
Key take-aways from the April jobs report
April payrolls rose 288k and the net revision to the two prior months was +36k, so the net number was 324k, much stronger than the consensus forecast of 218k. Our estimate was 215k.
In short, a strong rise in payrolls, which supports our view that the economy is springing back to life after a winter slump spurred mainly by bad weather. We continue to expect payroll growth in the coming months to exceed the 200k mark, which was the norm last year. With the revisions, payroll gains have averaged 214k so far in 2014, up from last year’s 194k monthly average.
The unemployment dropped to 6.3% – well below the 6.6% consensus. But the details were weaker, with a 73k decline in the household survey employment measure and an 806k drop in the labour force as the labour force participation rate fell 0.4% point to 62.8%, matching the three-decade low reached in December. Our unemployment forecast was 6.6%. The sharp drop in the participation rate obviously supports our view that the trend in the participation rate has not suddenly turned up again, despite the increases seen in the first three months of the year.
Within the unemployment rate, short-term unemployment (less than 26 weeks) fell to 4.1% after 4.3% in March, very close to the 4% level seen in early 2008 when the recession started. The long-term rate was 2.2% after 2.4% in March. The low level of short-term unemployment is especially noteworthy because it has tended to be much more important for wage pressures than long-term unemployment.
Conversely, hourly earnings were flat in April, below the consensus forecast of a 0.2% rise, after a weak upwardly revised 0.1% increase in March (revised from 0.0%), which likely reflected the unwinding of weather distortions. Annual wage growth of all private employees fell to just 1.9% y/y, the weakest gain this year after 2.1% in April.
The workweek was also flat in April but that follows a healthy 0.2 hour rise to 34.5 in March. The consensus was 34.5. Overall private wage income (hourly wages multiplied by hours worked) rose just 0.3% in April after a strong 0.8% gain in March, which overall should provide a boost to consumer spending.
Nordea