Job creation slowed in the US last month with the rise in non-farm payrolls coming in at 160,000 against expectations of a 200,000 gain. Figures for the previous two months were revised down by a cumulative 19,000. The unemployment rate remained at 5%, but this was due to a drop in the participation rate by 0.2% to 62.8% as the household survey (separate from payrolls) showed a fall in employment over the month.
So, at first glance this would seem to be a soft report; however, other elements were more robust. For example, average hourly earnings growth ticked up to 2.5% year-on-year and the average work week increased by 0.4% month-on-month.
The latter is a useful indicator of GDP growth and suggests that the US economy got off to a good start in the first month of the current quarter, thus reinforcing hopes of a bounce back from a subdued first quarter.
The breakdown of job growth showed an interesting reversal of recent trends. Government jobs fell on the month, the first decline since last October. Private job growth held up well, led by professional and business services. Meanwhile, the retail sector, which has been a driver of job gains recently, went into retreat with shops and outlets shedding jobs in April. By contrast, the manufacturing sector, which cut workers in February and March, began to hire again in April. This is consistent with the manufacturing Institute for Supply Management (ISM) index, which has shown a steady trend toward better jobs growth in a sector that appears to have turned a corner after struggling with excess inventory over the past few months. Jobs in manufacturing tend to be better paid than retail thus helping to boost wages in the economy.
The combination of weaker hiring but better wage growth ties in with an ageing economic cycle in the US.
The Federal Reserve will note this and the potential rebound in Q2 growth, but we will need to see across-the-board strength in activity for the authorities to move as soon as June.
