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The US economy created an additional 263,000 jobs in April, with the unemployment rate falling to 3.6%, its lowest level in a century, the Department of Labor said Friday. The number of jobs in the titles was stellar, but the jobs report looked rather ugly below the surface. Wage growth appeared rather sluggish for a second consecutive month, even as workers registered fewer hours. So why did the Dow Jones and the stock market in general contribute to modest gains in the stock market after the April jobs report?
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Wall Street may have dismissed the bad news as a likely statistical oddity. Or, investors have hailed the not too hot report as welcoming for Goldilocks – and a dovish Fed.
The bottom line of any jobs report is the overall change in weekly earnings. This takes into account net hiring, average hourly wage growth, and changes in total hours worked in the economy. In April, cumulative weekly payrolls increased by only 0.1%, which is the low since the end of 2016. However, official data suggests that it is not just a month: month of weekly payroll slowed to 4.9%. This corresponds to the lowest growth recorded over the course of a year and is half a percentage point lower than the average growth recorded in the second half of 2018.
Has growth in employment slowed?
The private sector has created 236,000 jobs. This is the number to capture in the coming months as the government increases recruitment for the decennial census.
Wall Street economists estimated 180,000 new jobs, including 178,000 in the private sector. The consensus forecast was for an unemployment rate of 3.8% and average hourly wage growth of 3.3%.
After a review combined with an increase of 16,000 jobs created for the months of March and April, the economy generated a fairly strong average of 169,000 new jobs per month over the last three months. But the monthly pace of hiring in the private sector has fallen to 154,000.
In April, the private sector added 33,000 construction jobs and 202,000 jobs in the services sector. But there were two weak points. The car manufacturers have eliminated 1,500 jobs and retailers, 12,000.
The economy is creating more jobs than expected for new entrants to the labor market, further reducing unemployment. But it seems that the growth of employment is slowing down. Yet three months are too short to draw conclusions. Remember that the economy created 300,000 jobs during a mild January, which contributed to the weakness of the February edition.
Blame sweet wage growth on the calendar?
Ian Shepherdson, chief economist at Pantheon Economics, suggested that the low wage growth reported in the employment report should not be taken for granted. He noted that the survey week did not include the 15th and that April had an extra day of work. "When the two quirks arrive the same month, average hourly earnings (AHE) tend to be depressed," Shepherson tweeted.
However, this does not explain the shorter average work week, which went from 34.5 hours to 34.4 hours.
Nevertheless, it is best not to create too much data for a month.
Dow Jones and Treasury Return Reaction
On Friday, the Dow Jones rose 0.4%, the S & P 500 0.6% and the Nasdaq 1.1%, close to the highs of the session. The 10-year Treasury yield, which rose 2.56% before the report, fell to 2.52% after the data.
The bond market appeared to capture data on wages and hours worked, and stocks followed the bond market. The slowdown in employment growth, if it continues and that inflation remains moderate, could lead to fears of lower Fed rates later this year.
Wage growth and weak labor market in the outlook
Wage growth has shown no signs of slowing down. After Amazon (AMZN) increased its minimum wage to $ 15 hour from November, Costco (COST) followed suit in March. Last month, Target (TGT) increased his minimum wage from $ 13 to $ 13 at the hour.
Now that consumer incomes have started to decline through tax cuts, it remains to be seen whether companies will slow down hiring. This depends in part on the ability of employers to re-engage marginalized workers in the labor market. For example, McDonalds (MCD) is partnering with AARP to help seniors secure 250,000 summer jobs.
Faster productivity growth could also help sustain higher wage growth as the output of workers increases. On Thursday, the Labor Department announced that productivity had grown 2.7% over the first quarter of last year, which represented the largest increase since 2010. It is not yet clear it is about a rise or increased productivity.
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