05.05.2017 - US: Employment growth with expected rebound in April

non-periodical

The Bureao of Labor Statistics has announced today that non-farm employment grew by 211,000 in April. Although this result exceeded the consensus estimate of 193,000, our estimate of 230,000 was set somewhat too high. The initially reported increase for March and February overall experienced a downward revision by 6,000 jobs. The unemployment rate decreased again and now stands at 4.4%.

Market reaction: Markets did not show any significant reaction to the labour market data.

Our assessment: As expected, the disappointing result in March – which was probably not least due to the weather - was followed by a countermovement in employment growth in April. Although the latter turned out to be slightly less strong than expected by us, it is however sufficient for the March result to be referred to as a slip. In the past six months, employment saw average growth by 176,000. In the past twelve months, this figure stood at 186,000. The monthly trend increase of employment is therefore likely to be approximately 180,000. One may thus assume that a similarly high number of new posts will on balance be filled in the coming months. This is relevant especially since – according to the estimates of various regional Federal Reserve central banks - only a monthly employment plus of less than 100,000 is necessary to keep the labour market report in balance, i.e. to fix the unemployment rate at the current level.

Apart from job growth, virtually all other areas of the labour market developed positively, as well, in April. According to the household survey, the number of employed individuals, in fact, grew by 156,000. At the same time, the number of unemployed individuals decreased by 146,000. The participation rate grew marginally, reaching 62.9%. Against our expectations, the unemployment rate declined again and now stands at a mere 4.4%. This corresponds to the most recent cyclical low from Q4 2006 and/or Q1 2007. Simultaneously, the under-employment rate frequently cited by Fed Chair Yellen once again fell by 0.3 percentage points to 8.6%, primarily because the number of involuntary part-time workers has again seen a sharp fall (-281,000). At 8.6%, the under-employment rate is now below the 8.9% average of the years 1994-2007.

As expected, average hourly wages grew by 0.3% mom. The year-on-year rate nonethe-less dropped from 2.6% to 2.5%, as the wage increase in March saw a downward correc-tion. In May, the wage plus is likely to amount to just 0.1% mom owing to an unfavourable calendar effect. Against the backdrop of the perceptible fall in unemployment, wage growth has lately shown a disappointing development.  

Monetary policy implications: In our opinion, today’s labour market report has further increased the likelihood of an interest rate hike in June. Monetary authori-ties should check off the weak job growth observed in March and rather address the question as to how far the unemployment rate can still fall before tensions arise on the labour market. At an unemployment rate of “no more than” 7 million, an employment growth exceeding the balanced increase by 80,000 arithmetically results in a 0.05 percentage-point decrease in the unemployment rate each month. At this speed, the unemployment rate would stand at only 3.7% in mid-2018. It is hardly conceivable that undershooting the balanced unemployment rate so strongly would have no negative consequences for the inflation development. That’s why we assume that the Fed will increase key interest rates at least as strongly as it has announced in March in the current year and next year.

 

Labour market report

 

April

RBI

Consensus

March

February

Non farm payrolls

211

230

193

79

232

   - Total private

194

-

-

77

222

     - Goods producing

21

-

-

23

88

     - Service providing

173

-

-

54

134

  - Government

17

-

-

2

10

Unemployment rate, %

4.4

4.6

4.5

4.5

4.7

Source: BLS, Bloomberg, RBI/Raiffeisen RESEARCH


 
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Creation time of this publication: 05/05/2017 05:31 PM (CEST)
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