US Unemployment Rate Falls To 17 Year Lows

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Job growth in the United States was falling more than expected as the US unemployment rate falls to 17 year lows at 3.9%. The decline came as some of the workers left the work force.

The U.S. Labor department released the highly anticipated nonfarm payrolls report on Friday. The official data showed that wages barely increased. This is likely to ease the market expectations of a faster than expected rise in inflation which could lead to a faster pace of rate hikes.

Data from BLS showed that for the month of April, the U.S. economy added 164k jobs during the month. The numbers for March, which was initially reported at 103k, was seen being revised to 135k. Combined, the data showed that it was still the smallest number of jobs created in the past six months following February’s increase of 324k.

US Unemployment Rate Falls To 17 Year Lows
U.S. Nonfarm payrolls, April 2018: 164k vs. 190k (Source: Tradingeconomics.com)

The median estimates pointed to a 192k jobs being added on the month and forecasts showed that the unemployment rate would slip from 4.1% to 4.0% during April.

Hiring was seen to be moderately growing with the sluggish pace of job growth attributed to the cold weather both in March and April. The jobs report showed that there was an increase in the employers looking for workers, most notably in the manufacturing and construction sectors.

The U.S. unemployment rate fell from 4.1% to 3.9% in April. This was the lowest unemployment rate recorded since December 2000. The Federal Reserve forecast that unemployment rate would fall to 3.8% by the end of the year.

The decline in the unemployment rate however came as 236k workers left the labor market. The labor force participation rate which measures the proportion of working age Americans who have a job or looking for one was seen falling to 62.8% in April compared to 62.9% in March.

Average earnings were seen rising by just four cents or 0.1% on the month. This comes following a 0.2% increase in March. On an annual basis, the average hourly earnings was at 2.6%.

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The average hourly earnings showed that wage inflation grew only slightly but other measures remained robust. The employment cost index which is seen as a measure of labor market slack was seen rising strongly in the first quarter with wages rising at the fastest pace in nearly 11 years.

Recent data showed that the Fed’s preferred gauge of inflation, the core PCE price indeed was 1.9% on a year over year basis in March. This was after the index rose to 1.6% the month before. The weaker pace of wage growth suggests that inflation pressures are likely to ease, which falls in line with the current narrative of the markets expecting to see three rate hikes this year.

Among the sectors that contributed to the job growth, the construction sector was seen adding 17k jobs during the month. This came after the sector reported a decline in March. Manufacturing sector was seen adding 24,000 jobs while the retail sales added 1,800 jobs during the period. Government payrolls declined by 4000 in April and this was attributed to a decline in the employment in the education sector. Leisure and hospitality industry added 18,000 jobs during the month.

The U.S. economy is expected to add an average of 120k jobs every month to keep up with the growth in the working age population. Other measures of employment, namely the underemployment rate which measures the number of people unable to find work or working part-time fell to 7.8% in April. This was better than the March print of 8.0%.

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