The jobs report shows that the labor market has started healing after the weak showing in the first quarter, likely giving some clarity and visibility to market expectations about Fed policy. This is a very positive report for those who had started worrying after the recent run of weak economic readings that the economy’s loss of momentum in Q1 was more than a just a temporary pause.
The April jobs report from the U.S. government’s Bureau of Labor Statistics (BLS) came in line with estimates, with ‘headline’ job gains of 223K for the month vs. the prior month’s tally of 85K (which was revised lower: 85K vs. 126K originally). The unemployment rate went down one tick to 5.4% from 5.5% the month before, which is down from 6.7% in April 2014. The labor force participation rate was little changed from the prior month at 62.8%, with this key ratio bouncing around in a very narrow range of 62.7% to 62.9% since April 2014.
The professional and business services, healthcare and construction industries were big jobs producers this month, with oil and gas following the expected negative path and manufacturing little changed. The 45K gain in the construction industry for the month is the clearest signal that the Q1 weakness was weather-related. Mining employment fell by 15K in April, bringing the year-to-date losses in this space to 49K. Average hourly earnings increased by a weaker-than-expected +0.1% from the preceding month and +2.2% from the year-earlier month to $24.87 per hour, continuing the sub-par growth pace that we have been seeing throughout this cycle.
The Fed has to weigh the economy’s growth momentum while evaluating policy normalization. Given the economy’s weak showing in Q1 and the mixed start to the current quarter, the June timeline is likely no longer on the table. But if incoming data comes along the lines of what we saw this morning in the jobs reading, then the September FOMC meeting will become the most likely time to start interest rate hikes.