United States: Payroll gains strengthen in April while wage growth remains stable
The April jobs report released by the Bureau of Labor Statistics (BLS) confirmed that the economy revved up after a soft patch in February. Non-farm payrolls increased 263,000 in April, up from a revised 189,000 in March (previous estimate: 196,000) and exceeding market expectations of 180,000, while net revisions to past months’ data yielded an extra 16,000 jobs.
Looking at the details, the April report showed broad-based strength across sectors, with a few noticeable exceptions. Construction performed particularly well in the month—a positive sign considering the sector has been affected by labor shortages for skilled workers—while in the service sector, professional and business services posted very strong gains. This was partly due to a large rise in temporary jobs, indicating that firms are increasingly relying on contractors to fill positions quickly amid a tight labor market. In other positive news, payroll growth remained robust in the education and health services as well as leisure and hospitality sectors, while the wholesale trade sector rebounded after marginally shedding jobs in the previous month. On the flipside, job growth in manufacturing remained weak after a flat March reading, while retail trade payrolls continued to contract for the third month in a row.
Moreover, the unemployment rate unexpectedly fell to a 49-year low of 3.6% in April, confounding market expectations of a stable 3.8% print. However, this was largely due to a declining labor participation rate, which again fell—as it did in March—by 0.2 percentage points in April to 62.8%. Turning to earnings, the reading slightly disappointed market analysts considering the strength of payroll gains in the month. Average hourly earnings increased 0.2% month-on-month, matching the March print, while annual wage growth came in at 3.2%, also unchanged from March but missing expectations of 3.3%. Nonetheless, wage growth for production and nonsupervisory workers reached 3.4% in the month, indicating stronger gains for lower-paid employees.
Overall, the labor market outlook appears solid and bodes well for economic momentum in the second quarter. As Nomura analysts note, “altogether, the payroll employment data suggest strong hiring activity at the start of Q2, consistent with the pickup in momentum at the end of Q1. […] Importantly, the acceleration in temporary help service hiring, which has faltered recently, suggests that the underlying trend of employment growth remains relatively strong”. That said, some of our panelists still expect payroll gains to ebb somewhat this year as available workers become harder to find. For instance, Leslie Preston, senior economist at TD Economics, believes that “with the unemployment near a record low, supply constraints will begin to bind. This will mean more muted monthly payroll gains, consistent with a mature phase of the economic cycle”.