Update US Labour Market Dashboard

Poor payrolls, but underlying trend remains positive

Tomorrow, the Fed will start its two-day FOMC meeting. Last month, the FOMC changed its forward guidance, signaling that they are now again fully data-dependent. As the Fed is closely watching labour market developments, we provide you with an update of our Labour Market Dashboard to summarize the latest developments in the US labour market.

US economic growth slowed significantly at the end of last year and most likely further at the start of 2015, partly due to poor weather conditions and a strong US dollar. For long, US labour market data remained exceptionally strong, but in March the payrolls report disappointed too. Employment growth slowed to just 126 000, less than half the average of the previous three months and the weakest outcome since December 2013. The household survey, on the contrary, painted a more positive picture on the health of the US labour market. While the unemployment rate stabilized at 5.5%, the U6 unemployment rate and the long-term unemployed share dropped significantly further. Wage data were slightly stronger too, although they remain well below the Fed’s view of normal wage growth. The weak payrolls could still be a result of poor weather conditions and therefore we are eager to see if there are signs of improvement in April. Another poor report would be a huge disappointment as it shows weather conditions are not the only factor behind the easing in hiring. For now, it’s however too early to draw such conclusions as the trend in almost all indicators remains positive and we expect US growth to pick up again soon. The JOLTS report for February was mixed with job openings improving strongly, but hiring still lags.

A quick look at the table below shows that the latest developments in the US labour market remain positive. Five out of our ten indicators improved further compared with the previous month (green arrows), while three indicators weakened (red) and two stabilized (yellow). After the poor payrolls, only two indicators have met our self-defined target, one less than in the previous months, but we believe that the payrolls will soon return above our target. For the unemployment rate, we have lowered our target as the Fed did at its March meeting. A few other indicators are nearing their targets too.

To conclude, despite the poor March payrolls, the trend in the US labour market remains positive and we believe that the slowdown in payrolls is temporary. As growth should pick up again, we expect the labour market to extend its improvement and hope to see signs in the coming quarters that wage growth is picking up. While the Fed will probably hold off a first rate hike in June and July, we believe labour market conditions will allow a first move in September.