Non Farm Payrolls
April payrolls grew by 211k, 21k more than expected and partially offset by a downward revision of 6k in the two prior months. Much of the April upside was in the government as the private sector only saw a 4k person upside at 194k while March was revised down by 12k and February was revised up by 1k. Thus, taken together in the private sector, the total figures were a very slight miss relative to expectation. Within government that provided the upside, 17k were added and all in the state and local government side as the Federal Government shed 6k jobs.
The volatile household survey grew by 156k (of which 92k came from the important 25-54 yr old category) and because only 12k came into the labor force, the unemployment rate fell another tenth to 4.4% and the U6 rate was down a sharp 3 tenths to 8.6%. The 4.4% rate now matches the lowest level seen since the mid 2000’s. It got as low as 3.8% in April 2000. The U6 rate is the lowest since November 2007 and bottomed at 7.9% in that recovery. It was as low as 6.8% in October 2000. The participation rate did fall by one tenth to 62.9% and remains in a 4 month tight range and off the multi decade low seen last year.
The labor market is clearly tightening further here but it didn’t show up yet in the wage data as average hourly earnings were up by .3% m/o/m but from a one tenth downwardly revised March print to up .1%. On a y/o/y basis, wages were up 2.5%, two tenths less than expected but with a one tenth pick up in hours worked, average weekly earnings rose 2.5% too but that was the most since December. These are all still mediocre numbers but the continued fall in the unemployment rate is really laying the groundwork for a move higher in wages.
Within the job categories, after a sharp gain in construction in January and February due to the balmy winter, job growth was just 5k in April after a 1k print in March. Manufacturing job growth slowed to 6k, the least since November. After 2 months of sharp job losses, retail added 6k people. Leisure and hospitality, followed by education/health were the two biggest contributors to growth.
Bottom line, looking solely at the private sector, the 3 month job gain was slightly less than expected but the continued fall in the U3 and U6 unemployment figures locks in a June rate hike, I believe, as the Fed is very reactive. And looking at this and the inflation stats driving policy, they are now stretching the historical rubber band in terms of what this may mean for future wage growth. Smoothing out the recent track record has 3 month headline job growth average at 174k vs the 6 month average of 176k, the 12 month average of 186k, the 2016 average of 187k and vs 226k in 2015 and 250k in 2014. This is otherwise known as late cycle behavior as the supply of workers shrink.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor.