US job growth recovers, keeps 2015 Fed rate rise in play
Washington (May 9) US job growth rebounded last month and the unemployment rate dropped to a near seven-year low of 5.4 per cent, suggesting underlying strength in the economy at the start of the second quarter that could keep alive prospects for a Federal Reserve rate hike later this year.
Non-farm payrolls increased 223,000 as gains in services sector and construction jobs offset weakness in mining, the Labour Department had said on Friday.
The one-tenth of a percentage point decline in the unemployment rate to its lowest level since May 2008 came even as more people piled into the labour market.
However, wage growth was tepid and March payrolls were revised downward, leading financial markets to push back rate hike bets.
“We see this report as reducing concerns that weak first-quarter growth represents a loss of economic momentum,’’ said Michael Gapen, chief US economist at Barclays in New York.
Nevertheless, he said the bounce back was not strong enough to think the Fed could bump rates higher before September.
March payrolls were revised to show only 85,000 jobs created, the fewest since June 2012. That resulted in 39,000 fewer jobs added in February and March than previously reported, underscoring the weakness in activity at the start of the year.
Investors on Wall Street cheered the report. US stocks ended the session more than 1 per cent higher.
Yields on US Treasury debt dropped and futures contracts showed traders clinging to bets the US central bank would raise rates from near zero this year.
The dollar rose marginally against a basket of currencies.
Employment growth averaged 257,000 per month in the 12 months prior to April.
Labour market tightening
The drop in the unemployment rate pushed it within a whisker or two of the 5.0 per cent to 5.2 per cent range that most Fed officials consider consistent with full employment.
Some economists said the diminishing labour market slack could push Fed officials to tighten monetary policy despite anaemic wage growth.
“Even without wages or inflation picking up, we do not think the Fed will feel comfortable sitting at zero as the unemployment rate closes in on 5 per cent,’’ said Michelle Girard, chief economist at RBS in Stamford, Connecticut.
Also encouraging, the labour force participation rate, or the share of working-age Americans who are employed or at least looking for a job, rose 0.1 percentage point to 62.8 per cent, although that was just up from a 36-year low.
Other measures on the Fed’s so-called dashboard also improved further.
A broad measure of joblessness that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment fell to 10.8 per cent — the lowest level since August 2008.
In addition, the number of long-term unemployed continued to fall, touching its lowest level since late 2008. Though there was a rise in part-time workers, the trend remained in favour of full-time employment.
Wages, however, were a weak spot. Average hourly earnings rose just three cents in April. While that took the year-on-year gain to 2.2 per cent, it stayed in the range it has been in for the past few years.
The sluggishness in average hourly earnings is in stark contrast with other compensation measures that have suggested solid wage growth in recent months.
“With the unemployment rate approaching full-employment levels it will only be a matter of time before wages start to rise at a somewhat swifter pace,’’ said Scott Anderson, chief economist at Bank of the West in San Francisco.
Last month, the government had reported that the economy expanded at only a 0.2 per cent annual rate in the first quarter, but data earlier this week showing a wider-than-forecast trade deficit suggests GDP actually shrank.
There was a broad-based acceleration in job growth in April, with the exception of the mining sector, where a plunge in crude oil prices has undercut energy production.
Schlumberger, the world's No.1 oil-field services provider, had said last month it would cut a further 11,000 jobs, bringing total layoffs this year to 20,000. Baker Hughes and Halliburton have also announced thousands of redundancies.
Mining payrolls fell 15,000, logging the fourth straight month of declines. Oil and gas extraction recorded the biggest jobs decline since September 1992.
Manufacturing employment increased 1,000 after being flat in March as factories struggle with a strong dollar, which has gained 12 per cent against currencies of the United States' main trading partners since June. Construction payrolls jumped 45,000 after falling 9,000 in March.
Private services employment rose 182,000 and government payrolls increased 10,000.
The workweek held steady at 34.5 hours.