There was a lot of important information on the U.S. economy released this week, but the biggest data point is without a doubt the latest monthly job report from the Bureau of Labor Statistics (BLS) out this morning. Indeed, total nonfarm employment in America rose by 263K payrolls in April, the 103rd consecutive month of net job growth and significantly better than anticipated. April’s large increase, though, might have been inflated a bit by a spike in temp worker hiring related to the upcoming national census. However, there was also a net upward revision of 16K payrolls to the February and March reports, which altogether equates to an average monthly job gain for 2019 (YTD) of 205K. That is well above the level of job creation needed to keep up with U.S. population growth, but also consistent with the gradual decline in job creation we suggested should occur following 2018’s above-trend pace of hiring.
Moreover, monthly gains of 250K or more payrolls should become increasingly rare or else there is a lot more slack left in the labor market than previously believed. An uptick in labor force participation over the past few years has increased the labor supply and in turn helped explain why wage growth remained muted and the decline in joblessness slowed despite steady hiring. Participation, though, has fallen sharply in recent months due in part to a renewed drop in employment among Americans ages 55 and over (retiring Baby Boomers). Unsurprisingly, the official unemployment rate (U-3) has also fallen over this period to just 3.6 percent, a nearly half-century low, while the underemployment rate (U-6) has held steady at 7.3 percent. We may see some bounce back in participation in the following months, but overall labor conditions should continue to tighten in the medium-term and keep upward pressure on wages. While headline earnings growth actually disappointed forecasts in April, income gains for non-managerial workers and those in typically low-wage industries continued to outperform. This bodes well for consumer spending, the largest component of U.S. GDP, since consumption behavior for lower-income Americans is more sensitive to changes in earnings.
Sources: Econoday, U.S. DoL, Bloomberg, WF, Twitter, FRBSL
Post author: Charles Couch