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Economic Insights

Though the jobless rate dipped below 4%, wage-growth figures suggest that the U.S. economy still has not reached full employment.

The U.S. Bureau of Labor Statistics’ April employment report, released on May 4, 2018, showed that solid job growth is continuing, though the pace has cooled somewhat, with the unemployment rate reaching a multi-decade low. Meanwhile, a moderate increase in average hourly earnings suggests wage inflation remains well controlled. Here’s a closer look at the report:  

Headline Numbers
Payroll employment rose only 164,000 in April, the second consecutive month of sub-200,000 growth, after an upside blowout in February. An upward revision to payrolls figures for February/March added an additional 30,000 jobs, putting the net increase squarely on target. The unemployment rate fell, to 3.93%, in April— within 0.1% of its lowest level since early 1970.

Labor-Market Sectors
Goods-producing industry employment continues to outperform the job gains registered earlier in the expansion, while employment growth in service-producing industries, especially retail, has slowed. The average increase of 26,000 in manufacturing employment over the past three months is consistent with an ongoing recovery in global trade. A dip of 4,000 in total government employment in April suggests that the primary impediment to faster economic growth remains fiscal drag, notwithstanding the increase in appropriations for both defense and non-defense expenditures.

Average hourly earnings rose only 0.1% in April, and were revised in March, from 0.3% to 0.2%. The year-over-year increase of 2.6% displays absolutely no hint of a change in trajectory. While other measures of labor costs suggest that inflation fundamentals are not as benign as the hourly earnings data suggest, there is little doubt that any acceleration actually taking place is not enough to prevent the U.S. Federal Reserve (Fed) from raising interest rates gradually, with an option to delay rate increases if the economy slows or the Fed’s balance-sheet contraction proves more restrictive than expected.

Key Takeaways
In summary, while the April jobs report indicates that  the labor market continues to grow at a solid clip, the lack of aggregate wage pressure suggests the U.S. economy is still below “potential” output—and full employment. Markets may be reassured that the “Fed put”—the notion that the central bank has the wherewithal to adjust policy to support markets if growth slows—still has some value.



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