Payrolls Expected To Rise At Slower Pace

NFP expected to rise 175k. Unemployment rate at 3.8%

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Investors turn their attention to the US jobs market today. The official payrolls report will be released by the Bureau of Labor Statistics (BLS).

Heading into the event, the median estimates point to the fact that the US economy added jobs at a slower pace.

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The economy is forecast to add 181,000 jobs in April while the unemployment rate is forecast to hold steady at 3.8%. The US unemployment rate which is at a multi-decade low has held steady at 3.8% for the last two months.

Wages, which were weak in the previous month are forecast to rise by 0.3% in April. This marks a strong increase after wages rose just 0.1% on the month in March.

Despite the somewhat downbeat forecasts, the labor market in the US is still chugging along at a strong pace. The economy has been adding jobs for 101 months so far, marking the longest stretch of job gains in US history. As a result, investors are starting to grow cautious amid signs that the labor market might have reached its potential.

US Payrolls Landscape

In February, the number of job openings fell by 538,000. The weakness was a surprise and was seen by many to be an outlier to the strong labor market. In March, the payrolls rose 196,000 while the unemployment rate held steady at 3.8%.

U.S. Nonfarm payrolls
US Nonfarm payrolls, March 2019 (196k)

Wage growth was seen rising at a pace of 3.2% on a year over year basis. This was a weak pace of wage growth since October 2018. The data was potentially underlining the fact that growth in wages might have fallen. This comes in contrast to the fact that employers are seeking higher skilled workers and there’s an apparent shortage of them.

U.S. Average Hourly Earnings
U.S. Average Hourly Earnings m/m

The rebound in the payrolls report for March proved that the sharp decline in February was a temporary hiccup.

The labor market landscape is one that has been improving at a steady pace. It remains one of the cornerstones of the US economic growth story.

In recent times, data shows that employment is decelerating although jobless claims continue to hit historical lows. This suggests that the labor market still has room to absorb further slack in the economy.

The participation rate fell to 63.0% from 63.2% previously in February. There were also declines in jobs in the manufacturing sector, something which investors will be keenly looking at in today’s report. This comes as April’s ISM PMI fell to 52.8 in April, down from 55.0 in March. The decline in manufacturing activity was broad-based. New orders fell while production also declines.

The markets remain cautious on subtle signals that the economy could lose the momentum.

ADP Private Payrolls Rise in April

The latest ADP payrolls report for April showed that private employers added 275k jobs in April. This beat estimates of 181k. The numbers for March were also revised higher from 129k to 151k.

While the private payroll figures show a higher estimate, it did come with a word of caution. Moody’s analytics chief economist cautioned that the gains came mostly from the service sector.

According to the latest payroll report, ADP said that significant job losses were seen in the natural resources and mining sectors. Moody’s chief economist, however, said that official payrolls report could be closer to the 175,000 – 200,000 mark, in line with the median estimates.

ADP’s figures came ahead of the Fed meeting later in the day. The Federal Reserve left interest rates unchanged at 2.50%. The meeting was underway as President Trump tweeted that the central bank should cut interest rates by as much as 1%. The central bank maintained a neutral tone in its forward guidance while acknowledging that inflation was weak.

In today’s payrolls report, we expect the payroll figures to come closely in line with the median estimates. Focus will shift to the average hourly earnings performance in April.

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