Non-Farm Payrolls: The school of work

• NFP trounces expectations with 263,000 new jobs
• Wage gains remain near post-recession high
• Dollar slips on priced-in market reaction, equities rise

American firms continued to produce new jobs at a steady pace in April and the unemployment rate dropped to a 50 year low, when these are combined with the first quarter’s robust expansion they give the US economy an excellent start on its second year of 3% growth.

Non-farm payrolls added 263,000 workers last month and revisions to February and March posted another 16,000, reported the labor Department on Friday. Employment gains have averaged 205,000 this year compared to 223,250 in 2018.  Economists had forecast 180,000 payrolls. Annual wages rose 3.2% as in March. They have averaged 3.14% for the past year the best rate since August 2009.

Reuters

The unemployment rate dropped from 3.8% to 3.6%, the lowest since December 1969.  The decline was due in part to nearly half a million people leaving the workforce. This lowered the labor force participation rate to 62.8.

Reuters

The reason for such an exodus from the labor force is probably not due to any change in the availability of jobs but to the simple accounting requirement of the Bureau of Labor Statistics. In order to be counted as unemployed and in the labor force an individual must have looked for work in the month prior to the household survey.

Job gains were heavily weighted to the service sector with 76,000 in professional and business services and 62,000 in education and health. Manufacturing added 4,000 workers. The private sector provided 236,000 positions and governments hired 27,000.  Retail trade lost 12,000 employees following the loss of 15,000 in March as the impact of the internet continues to hollow out stores across the country. 

Currency markets had largely priced in a good report after Wednesday’s ADP private payrolls showed a gain of 275,000 jobs in April far above the 180,000 forecast and the March result of 151,000.

The dollar rose about 20 points against euro after the release at 8:30 am EDT touching 1.1135 but by early afternoon the united currency had regained all of its losses since yesterday and was trading at 1.1197, almost exactly where it was 24 hours earlier.

The dollar/yen briefly pushed higher to 111.70, rising about 15 points but it quickly reversed and moved down to 111.14, near Wednesday’s low of 111.04 before stabilizing around  111.20.

Equities responded to the strong payroll report with the Dow rising 208 points by early afternoon and the S&P 500 adding 28 points and the Nasdaq 119.

Treasury rates slipped slightly, the 10-year generic yield lost 2 points to 2.53% and the 2-year did as well to 2.33% to the close.

The employment report and the recent drop in core PCE inflation backed up the Federal Reserve’s policy stance expressed by Chairman Powell after Wednesday’s meeting, “We do not see a strong case for moving [rates] in either direction,” said Mr. Powell.

Lower inflation over time provides consumers with the effect of higher wages by improving purchasing power.   At the April figures of 3.2% in annual wage gains and 1.6% core inflation household income rises 1.6% a year. Productivity jumped 3.6% in the first quarter its best gain in five years which will help employers sustain future wage increases. 

The AtlantFed GDPNow estimate for second quarter growth edged up to 1.7% after the payroll report.