Employment, Inflation, and the Fed

Growth in nonfarm payrolls rebounded in April, following a soft increase in March, consistent with a longer-term downward trend. The unemployment rate fell to 4.4%, the lowest level in over a decade. The results in recent months remain consistent with a labor market that is getting tighter. Average hourly earnings rose 0.3%, up just 2.5% from a year ago – a relatively soft pace considering the job market picture. This is consistent with the Fed gradually increasing short-term interest rates. However, might the Fed want to let things ride a lot longer?

Nonfarm payrolls rose by 211,000 in the initial estimate for April, following a 79,000 gain in March (revised from +98,000). Needless to say, there is a fair amount of statistical noise from month to month (the monthly change in payrolls is reported accurate to ± 120,000) and seasonal adjustment is often challenging (we added 1.026 million jobs prior to seasonal adjustment in April, a little less than we saw a year earlier). Looking at payroll gains over a period of months smooths out a lot of the noise. Private-sector payrolls averaged a 164,000 gain in the last three months, compared to a 170,000 average for all of last year (vs. +213,000 in 2015 and +239,000 in 2014). The underlying trend in job growth has been slowing.

Weekly claims for unemployment benefits continue to trend at a very low level. Job destruction is limited. Anecdotal reports suggest that firms are increasingly having a harder time finding qualified workers, a consequence of tighter job conditions.