Monday, May 6, 2013

Solid US jobs report in April

The recent improvement in the housing market has had us thinking that economic growth in America was finally starting to find some firmer foundations (the pun was unintentional).  We’ve been a bit more cautious about the labour market, especially in light of the fiscal drag headwind to growth and jobs this year.  However, the April employment data was decidedly “solid”.    That keeps us confident of more sustainable, though still modest, growth in America this year.

April payrolls beat market expectations rising 165k in the month.  On top of that we saw a continuation of the trend of significant upward revisions to prior month results with a total of 114k jobs added to the February (from +268k to +332k) and March from +88k to +138k) results.  The participation rate was steady at a 34 year low of 63.3% and the unemployment rate dropped to 7.5% in April from 7.6% in March.

The private sector remains the key driver of jobs growth.  That’s to be expected in an environment of fiscal consolidation.  But while the Government sector lost 11k jobs over the month, that’s really no better or worse than the trend of recent months.  Private sector payrolls have expanded an average 212k per month over the last three months.  Not spectacular, but definitely solid and in line with our expectations of around 2% GDP growth in America this year.  The only real disappointment recently has been the flat performance in manufacturing jobs over the last two months.

Growth in hourly earnings blipped up to 1.9% in April; again not spectacular but definitely solid.  That will underpin further modest gains in consumption expenditure in the period ahead and offset concerns about a consumer slowdown on the back of higher taxes.

Last week the Federal Reserve alluded to the fact that they had the option of both increasing and reducing their asset purchase program.  That’s a nod to recent weak activity data, especially the weaker than expected first print of +88k jobs growth in March (which is now +138k).  From our perspective the June quarter was always going to the weakest part of 2013.  However, the April jobs report, along with the improvement in the housing market, gives us confidence the underlying fundamentals are continuing to improve.