United States: Unemployment rate falls to over 17-year low in April
U.S. non-farm payrolls gained steam in April following a weak print in March. The economy added 164,000 non-farm jobs in April, above the upwardly revised 135,000 new jobs created in March (previously reported: +103,000), but missing market expectations of 191,000 jobs. April’s solid performance, along with the upward revision to March payrolls, point to strong hiring levels and an increasingly tight labor market.
Employment gains were made across a range of sectors in April. Professional and business services added a solid 54,000 new jobs. Manufacturing employment picked up an additional 24,000 jobs, with producers of durable goods, such as machinery and metal products, driving the increase. Construction payrolls rebounded (+17,000) following a drop in March, and education and healthcare kept up a strong pace of hiring (+31,000). Meanwhile, payrolls in retail trade and finance activities remained flat compared to last month.
The unemployment rate dropped from 4.1% in March to 3.9% in April, the lowest level since December 2000 and beating analysts’ expectations of a dip to 4.0%. The lower rate was driven by healthy payroll gains, but also in part by a decrease in the labor force, as the labor participation rate eased a tenth of a percentage point to a three-month low of 62.8%.
Despite tighter labor market conditions, wage inflation remained tepid at 2.6%, matching March’s revised print (previously reported: +2.7% year-on-year). In month-on-month terms, average hourly earnings were up a meager 0.1% in April, below market estimates and March’s downwardly revised 0.2% increase (previously reported: +0.3% month-on-month). Sluggish wage growth was a puzzling factor in April’s report. Even though employers are reporting labor shortages and unfilled job openings stand at a near record high, firms do not appear pressed to raise pay to attract new workers. Wage inflation should gain traction in the near term, however, as slack in the market continues to diminish and labor shortages become more prevalent.
Overall, April’s solid figures point to a robust labor market. The month’s employment data will likely solidify expectations of another interest rate hike at the Federal Reserve’s June meeting, as the economy remains on course to expand at a healthy pace in 2018. Furthermore, inflationary pressures are firming up, as demonstrated by the pick-up in core PCE inflation—the Federal Reserve’s preferred measure of inflation—in March.