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| A help wanted sign is posted at a taco stand in Solana Beach, California |
U.S. job growth increased less than expected in April and the
unemployment rate dropped to near a 17-1/2-year low of 3.9 percent as
some out-of-work Americans left the labor force.
The Labor Department’s closely watched employment report on Friday
also showed wages barely rose last month, which may ease concerns that
inflation pressures are rapidly building up, likely keeping the Federal
Reserve on a gradual path of monetary policy tightening.
“Fed officials can rest easy that there is not any wage-based
inflation on the horizon,” said Chris Rupkey, chief economist at MUFG in
New York. “There is no need to speed up the path of interest rates
because inflation isn’t heating up in a worrisome manner.”
Nonfarm payrolls increased by 164,000 jobs last month, the Labor
Department reported. Data for March was revised to show the economy
adding 135,000 jobs instead of the previously reported 103,000. That was
the fewest amount of jobs created in six months and followed an
outsized gain of 324,000 in February.
While cold weather in March and April probably held back job growth,
hiring is moderating as the labor market hits full employment.
Employers, especially in the construction and manufacturing sectors, are
increasingly reporting difficulties finding qualified workers.
The drop of two-tenths of a percentage point in the unemployment rate
from 4.1 percent in March pushed it to a level last seen in December
2000 and within striking distance of the Fed’s forecast of 3.8 percent
by the end of this year. It was the first time in six months that the
jobless rate dropped.
But 236,000 people left the labor force in April, adding to the
158,000 who quit in March. The labor force participation rate, or the
proportion of working-age Americans who have a job or are looking for
one, fell to 62.8 percent last month from 62.9 percent in March. It was
the second straight monthly drop in the participation rate.
Economists polled by Reuters had forecast payrolls rising by 192,000
jobs in April and the unemployment rate falling to 4.0 percent. Average
hourly earnings rose 0.1 percent last month after a 0.2 percent gain in
March. That left the annual increase in average hourly earnings at 2.6
percent.
The dollar shrugged off the employment data, rising to its highest
level this year against a basket of currencies. Stocks on Wall Street
rallied, with all three indexes closing more than 1.0 percent higher.
U.S. Treasury yields were little changed after dropping to multi-week
lows.
‘SUSTAINABLE PACE’
Sluggish wage growth and a slowdown in hiring threaten to undercut
the Trump administration’s argument that its $1.5 trillion income tax
cut package, which came into effect in January and is highlighted by a
sharp drop in the corporate income tax rate, would boost wages and
hiring.
Companies like Apple have used their tax windfall for share buybacks and dividends.
President Donald Trump cheered the drop in the unemployment rate on Friday.
“I thought the jobs report was very good. The big thing to me was
cracking 4,” Trump told reporters. “That hasn’t been done in a long time
… we’re at full employment. We’re doing great.”
Democrats, however, reiterated their criticism of the tax cuts,
saying more than $390 billion in share buybacks had been announced since
the passage of the tax bill.
“President Trump promised American families that they would see a
$4,000 annual raise after the tax plan, so far, average weekly wages
have increased $11.69,” Democratic Senator Martin Heinrich said.
But average hourly earnings could be understating wage inflation. The
Employment Cost Index, widely viewed by policymakers and economists as
one of the better measures of labor market slack, showed wages rising at
their fastest pace in 11 years during the first quarter.
Inflation is flirting with the Fed’s 2 percent target.
The Fed’s preferred inflation measure, the personal consumption
expenditures price index excluding food and energy, was up 1.9 percent
year-on-year in March after a 1.6 percent rise in February.
The U.S. central bank on Wednesday left interest rates unchanged and
said it expected annual inflation to run close to its “symmetric” 2
percent target over the medium term.
Economists interpreted symmetric to mean policymakers would not be too worried with inflation overshooting the target.
Two Fed officials who are currently voting members of the central
bank’s rate-setting committee showed little concern on Friday about
price pressures heating up and said they were keeping an open mind on
the total number of rate increases needed this year.
The Fed hiked rates in March and has forecast at least two more increases for 2018.
Economists expect the unemployment rate will drop to 3.5 percent by
the end of the year. Monthly job gains have averaged about 200,000 this
year, more than the roughly 120,000 needed to keep up with growth in the
working-age population.
A broader measure of unemployment, which includes people who want to
work but have given up searching and those working part-time because
they cannot find full-time employment, dropped to 7.8 percent last
month, the lowest level since July 2001, from 8.0 percent in March.
Construction payrolls rebounded by 17,000 jobs last month after
recording their first drop in eight months in March. Manufacturing
employment increased by 24,000 jobs in April after a gain of 22,000
positions in March.
Payrolls for temporary help, seen as a harbinger of future permanent
hiring, rose by 10,300 after falling by 2,100 in March. There was a
modest gain in leisure and hospitality employment while wholesale
traders laid off workers.
Government payrolls fell 4,000 in April amid a decline in education employment at state governments.
“The moderation in job gains over the past two months may mark the
beginning of the slow deceleration to a sustainable pace of job gains,
which we estimate to be around or a little below 100,000 per month,”
said Michael Feroli, an economist at JPMorgan in New York.
