WASHINGTON, May 4 — US job growth increased less than expected in April and the unemployment rate dropped to near a 17-1/2-year low of 3.9 per cent as some out-of-work Americans left the labor force.
The Labor Department’s closely watched employment report today also showed wages barely rose last month, which may ease concerns that inflation pressures are rapidly building up, likely keeping the Federal Reserve on a gradual path of monetary policy tightening.
“Fed officials can rest easy that there is not any wage-based inflation on the horizon,” said Chris Rupkey, chief economist at MUFG in New York. “There is no need to speed up the path of interest rates because inflation isn’t heating up in a worrisome manner.”
Nonfarm payrolls increased by 164,000 jobs last month, the Labor Department reported. Data for March was revised to show the economy adding 135,000 jobs instead of the previously reported 103,000. That was the fewest amount of jobs created in six months and followed an outsized gain of 324,000 in February.
While cold weather in March and April probably held back job growth, hiring is moderating as the labor market hits full employment. Employers, especially in the construction and manufacturing sectors, are increasingly reporting difficulties finding qualified workers.
The drop of two-tenths of a percentage point in the unemployment rate from 4.1 per cent in March pushed it to a level last seen in December 2000 and within striking distance of the Fed’s forecast of 3.8 per cent by the end of this year. It was the first time in six months that the jobless rate dropped.
But 236,000 people left the labor force in April, adding to the 158,000 who quit in March. The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, fell to 62.8 per cent last month from 62.9 per cent in March. It was the second straight monthly drop in the participation rate.
Economists polled by Reuters had forecast payrolls rising by 192,000 jobs in April and the unemployment rate falling to 4.0 per cent. Average hourly earnings rose 0.1 per cent last month after a 0.2 per cent gain in March. That left the annual increase in average hourly earnings at 2.6 per cent.
The dollar shrugged off the employment data, rising to its highest level this year against a basket of currencies. Stocks on Wall Street rallied, with all three indexes closing more than 1.0 per cent higher. US Treasury yields were little changed after dropping to multi-week lows.
Sluggish wage growth and a slowdown in hiring threaten to undercut the Trump administration’s argument that its US$1.5 trillion (RM5.9 trillion) income tax cut package, which came into effect in January and is highlighted by a sharp drop in the corporate income tax rate, would boost wages and hiring.
Companies like Apple have used their tax windfall for share buybacks and dividends.
President Donald Trump cheered the drop in the unemployment rate today.
“I thought the jobs report was very good. The big thing to me was cracking 4,” Trump told reporters. “That hasn’t been done in a long time ... we’re at full employment. We’re doing great.”
Democrats, however, reiterated their criticism of the tax cuts, saying more than US$390 billion in share buybacks had been announced since the passage of the tax bill.
“President Trump promised American families that they would see a US$4,000 annual raise after the tax plan, so far, average weekly wages have increased US$11.69,” Democratic Senator Martin Heinrich said.
But average hourly earnings could be understating wage inflation. The Employment Cost Index, widely viewed by policymakers and economists as one of the better measures of labor market slack, showed wages rising at their fastest pace in 11 years during the first quarter.
Inflation is flirting with the Fed’s 2 per cent target.
The Fed’s preferred inflation measure, the personal consumption expenditures price index excluding food and energy, was up 1.9 per cent year-on-year in March after a 1.6 per cent rise in February.
The US central bank on Wednesday left interest rates unchanged and said it expected annual inflation to run close to its “symmetric” 2 per cent target over the medium term.
Economists interpreted symmetric to mean policymakers would not be too worried with inflation overshooting the target.
Two Fed officials who are currently voting members of the central bank’s rate-setting committee showed little concern today about price pressures heating up and said they were keeping an open mind on the total number of rate increases needed this year.
The Fed hiked rates in March and has forecast at least two more increases for 2018.
Economists expect the unemployment rate will drop to 3.5 per cent by the end of the year. Monthly job gains have averaged about 200,000 this year, more than the roughly 120,000 needed to keep up with growth in the working-age population.
A broader measure of unemployment, which includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment, dropped to 7.8 per cent last month, the lowest level since July 2001, from 8.0 per cent in March.
Construction payrolls rebounded by 17,000 jobs last month after recording their first drop in eight months in March. Manufacturing employment increased by 24,000 jobs in April after a gain of 22,000 positions in March.
Payrolls for temporary help, seen as a harbinger of future permanent hiring, rose by 10,300 after falling by 2,100 in March. There was a modest gain in leisure and hospitality employment while wholesale traders laid off workers.
Government payrolls fell 4,000 in April amid a decline in education employment at state governments.
“The moderation in job gains over the past two months may mark the beginning of the slow deceleration to a sustainable pace of job gains, which we estimate to be around or a little below 100,000 per month,” said Michael Feroli, an economist at JPMorgan in New York. — Reuters