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Fast Comment USStrong payrolls, but moderate wage growth

  1. Strong payrolls; unemployment at its lowest rate since 1969
  2. Wage growth holds steady
  3. We expect job growth to slow down and the Fed’s next move will be to cut rates
Strong payrolls; unemployment at its lowest rate since 1969
Total non-farm payroll employment increased by 263,000 in April, more than the consensus expectation of 190,000. The strong print was further amplified by a total net revision of 16,000 for the previous two months. Even if employment growth was unusually weak in February, the trend over the past few months as a whole remains solid with job growth above the growth rate necessary to keep up with population growth. Unemployment edged down to 3.6 percent, from 3.8 percent in March, well below Fed officials’ current 4.3 percent estimate of the long-run natural rate of unemployment. The last time the unemployment rate was lower than it is now was in the 1960s.
Wage growth holds steady
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 April, wage growth was 0.2 percent m-o-m, which left the y-o-y rate at 3.2 percent. All in all, we do not think the wage growth will rise much further in this business cycle as a downward trend in employment growth should moderate wage pressure.
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 clear signs of underlying weakness in the US economy and we expect that GDP growth will gradually slow this year as fiscal stimulus fades. The slowdown will drive employment growth gradually 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.

Anders Bergvall

Anders Bergvall

Senior Economist

Thematic analysis and USA

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