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Fast Comment USStrong employment gains, but moderate wage growth

  1. Strong employment gains; continued strong labour market
  2. Moderate wage growth
  3. We expect job growth to slow down and the Fed’s next move will be to cut rates
Strong employment gains; continued strong labour market
Total non-farm payroll employment increased by 196,000 in March, slightly more than the consensus expectation of 177,000. The strong print was further amplified by a total net revision of 14,000 for the previous two months. All in all, even if employment growth was unusually weak in February, the trend over the past few months as a whole remains solid. The unemployment rate was unchanged at 3.8 percent last month, well below Fed officials’ current 4.3 percent estimate of the long-run natural rate of unemployment.
Moderate wage growth
Wage increases have been slower than could be expected considering the continuing tightening of the labour market. Although wage growth has been trending upward, the pace has been slow. That may be partially explained by weak productivity growth and the deterioration of workers’ negotiating power. In March, wage growth was a disappointing 0.1 percent m-o-m, which dragged the annual rate down to 3.2 percent from 3.4 percent in February. That suggests inflation could be more muted than thought and reinforces a lack of urgency for the Fed to raise interest rates.
We expect job growth to slow down and the Fed’s next move will be to cut rates
All in all, the employment report suggests the labour market is still expanding at an above-potential pace. However, there are increasingly clear signs that weaker global demand, tighter monetary policy and capacity constraints are leading to a slowdown in GDP growth. The slowdown will drive employment growth lower in 2019 compared to 2018, resulting in a rebound in the unemployment rate in the second half of 2019. We think the economic slowdown and muted inflation will lead the Fed to remain on hold this year and that its next move will be to cut rates next year.

 


Disclaimer
Anders Bergvall

Anders Bergvall

Senior Economist

Thematic analysis and USA

anbe83@handelsbanken.se

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