Another month, another goldilocks jobs report, showing strong job growth and modest wage growth. One couldn’t reasonably ask for a report that more clearly affirms the Fed’s current policy stance. At the same time, it underlined questions about demographics and the inflation outlook.
The Headline Numbers
- Nonfarm payrolls rose by a much-better-than-expected 263k. Revisions to the prior months brought the 3-month moving average to 169k.
- The unemployment rate declined to 3.6% from 3.8% as labor force participation was revised downward. Job losers and the short-term unemployed led the decline.
- Wage growth held steady at 3.2%, even after the March figure was revised upward.
- The mix of jobs was overall encouraging, with the diffusion index rising to 60.1 from 59.7. Construction had another strong month (33k versus 20k prior), while strength in temporary services was a good sign for labor demand going forward (18k vs. -6k). Retail had another weak month (-12k vs. -16k) as it continues to endure disruptive structural shifts. Of note: Manufacturing saw some more softness (4k vs. 0k), with the sector-specific diffusion index falling to 48.0 from 53.9.
- Demographics & "full employment" in question: We have been wondering where "full employment" lies for several years, and we still don't have a clear answer. The decline in labor-force participation (second straight decline of 0.2%) was disappointing and means that the unemployment rate fell for the “wrong” reasons. The relatively modest decline in long-term unemployment was disappointing, as was the rise in involuntary part-time workers (4.7 million vs. 4.5 million). The latter left the U-6 "underemployment" rate unchanged at 7.3%.
- The modest wage growth (3.2% versus 3.2% prior and both 0.2% on the month) supports the Fed’s dovish pivot, especially given the shorter workweek (34.4 hours vs. 34.5) should have pushed wages up. The traditional relationship between inflation and low unemployment still seems absent. It’s not clear whether Chair Powell’s account of “transitory” factors applies here, but this does underline the Fed’s concerns about inflation expectations.
- Labor productivity looked very strong in the first quarter, but with jobs numbers like these, we would have to see GDP accelerate significantly to keep productivity rising at such a rate. Meanwhile, “What the tight labor market gives, the next recession may take away.” Workers – and the firms that need them – should think about how they can best make hay while the sun is shining. And I mean wise investments, not grabbing a quick buck.