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JPMorgan: Meager Wage Gains 'One Disappointing Part' of Jobs Report

JPMorgan: Meager Wage Gains 'One Disappointing Part' of Jobs Report
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Friday, 04 May 2018 10:59 AM

U.S. hiring rebounded in April and the unemployment rate dropped below 4 percent for the first time since 2000, while wage gains cooled by more than forecast, a sign that the labor market still isn’t tight enough to spur inflation.

Payrolls rose 164,000 after an upwardly revised 135,000 advance, Labor Department figures showed Friday.

Average hourly earnings increased 0.1 percent from the prior month and 2.6 percent from a year earlier, both less than projected. The jobless rate, derived from a separate survey of households, fell to 3.9 percent, the lowest since December 2000, after six months at 4.1 percent.

Treasury yields dipped and the dollar fluctuated following the report. Despite the softer-than-expected wage reading, an unemployment rate drifting further below Federal Reserve officials’ estimates of levels sustainable in the long run may in their view add to upward pressure on wages and inflation. That would keep the central bank on track to raise interest rates in June for the second time this year and once or twice more after that in 2018.

The results may also reinforce forecasts for a rebound in economic growth this quarter after a slowdown in the first three months of the year, with the labor market supporting gains in consumer spending that may be further fueled by tax cuts. Companies in industries from services to manufacturing are hungry for workers, indicating hiring is likely to stay solid.

“Overall, it’s a good report,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. “Slack is getting absorbed” but “the process of that translating into faster wages has been slow. Wages are clearly the one disappointing part of the report.”

For the Fed, though, “this is probably a wash,” he said.

The median estimate of analysts was for a gain of 193,000 jobs, with projections ranging from 145,000 to 255,000. Revisions to prior reports added a total of 30,000 jobs to payrolls in the previous two months, according to the figures, resulting in a three-month average of 208,000.

Private Employment

April’s payroll gain reflected a 168,000 increase in private employment, compared with the median estimate for 190,000. Goods-producing jobs picked up to a 49,000 increase, with construction rebounding to a 17,000 gain after a decline that may have been impacted by weather in March. Manufacturing added 24,000, the seventh straight month at 20,000 or more.

Hiring at service providers was little changed at 119,000, with the biggest gains in professional and business services at 54,000, and education and health services at 31,000.

The decline in the jobless rate resulted from a drop in the number of unemployed people, while the number of employed Americans was little changed, according to the Labor Department’s separate survey of households.

That pushed down the participation rate, or share of working-age people in the labor force, to 62.8 percent from 62.9 percent in the prior month. The employment-population ratio, another broad measure of labor-market health, fell to 60.3 percent from 60.4 percent.

The wage figures showed pay gains are having a tough time breaking out of their recent pace of modest increases. The monthly gain in average hourly earnings followed a downwardly revised 0.2 percent increase in March, and March’s annual increase was also revised lower to 2.6 percent.

A separate measure, average hourly earnings for production and non-supervisory workers, also increased 2.6 percent from a year earlier, after a 2.6 percent gain. The average work week for all private employees was unchanged at 34.5 hours.

Other Details

  • The U-6, or underemployment rate, fell to 7.8 percent from 8 percent; the gauge includes part-time workers who’d prefer a full-time position and people who want a job but aren’t actively looking
  • People working part-time for economic reasons fell by 34,000 to 4.99 million
  • The participation rate for prime-age workers, or people in the age group of 25 to 54, fell to 82 percent from 82.1 percent; rose among men, fell among women
  • Number of people out of work for 27 weeks or longer, or the so-called long-term unemployed, fell as a share of all jobless to 20 percent from 20.3 percent

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Wage gains cooled by more than forecast, a sign that the labor market still isn’t tight enough to spur inflation.
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Friday, 04 May 2018 10:59 AM
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