Update US Labour Market Dashboard

Despite mixed labour market data, the underlying trend remains very strong

US economic growth has slowed sharply in the second half of last year and most likely further at the start of this year. Despite only meagre growth, the labour market remained in excellent shape. Monthly payrolls growth remains well above 200 000 and the unemployment rate is hovering around the Fed’s full employment rate target.

Looking further into detail, a new and important development has started since the end of last year. The downtrend in the participation rate seems to have turned. In September last year, the participation rate dipped at 62.4%, its lowest level since the ‘70s, but after a four‐month uptrend it is now at 63%. The participation rate is unlikely to return to our target of 66% (average seen in 2003‐2007) due to demographical factors, but the recent uptick is an encouraging sign and indicates that Americans are returning to the labour force. As the civilian labour force has increased sharply recently, the downtrend in the unemployment rate has slowed. In March, the unemployment rate even picked up slightly, from 4.9% to 5.0%, jumping again above the Fed’s full employment rate target. The broader U6 unemployment rate, which is still somewhat above our target, hovered broadly sideways in the last few months, but we expect it to resume its downward trend soon. Somewhat disappointing however, the uptrend in wage growth seems to have stalled, remaining well below our target of 3.5% Y/Y. Turning to the JOLTS report, the latest developments are very positive too. The hires rate has finally reached our target, while the openings, quits and layoffs rates all remained in line with our target.

A quick look at the table below indicates that most recent developments were mixed. Four of our ten indicators improved and as many weakened, while two stabilized. Five of our ten indicators have met our self‐defined target, as many as in our previous report two months ago. While the unemployment rate fell below, the hires rate has now met the target. We believe that the unemployment rate will soon resume its downward trend and reach again our target. The four other indicators (U6 unemployment rate, LT unemployed share, participation rate and average hourly earnings) are still significantly below their targets, suggesting that there is still some slack remaining. At the current pace of job growth however, slack is rapidly being diminished.

•  Download Full KBC Flash