Unemployment Rate Fell to 3.9%, And Wages Shot Higher in April
An INTERACTIVE JOURNAL News Roundup
WASHINGTON -- The unemployment rate in April fell below 4% for the first time in 30 years and wages jumped, offering no relief from concerns that the tight labor market may spark inflation. See the full text of the Labor Department's April employment report.
The jobless rate fell to 3.9%, matching a figure not seen since January 1970, the Labor Department said Friday. Earnings -- a key gauge of inflationary pressure -- rose twice as fast in April as many economists were predicting.
Average hourly earning surged six cents, or 0.4%, $13.64. Economists surveyed by Thomson Global Markets expected wages to rise three cents, or 0.2%. Hourly wages rose 3.8% from a year earlier, logging the biggest gain in 10 months. March wages were revised to $13.58 an hour from $13.60.
Nonfarm payrolls grew 340,000, down from a revised 458,000 increase in March. Economists had been expecting an unemployment rate of 4%, with a 315,000 increase in payrolls.
Friday's report could provide more impetus for the Federal Reserve to aggressively raise interest rates later this month.
The central bank has worried for more than a year that the country's rapid economic growth and declining unemployment rate would trigger an outbreak of inflation. To forestall that possibility, the Fed has raised its target for the federal-funds rate five times since June in quarter-point increments -- with little braking effect. The economy grew at a robust 5.4% pace in the first quarter amid the strongest signs of inflation in years.
Many economists recently have been predicting the central bank will raise the fed-funds rate, which banks charge each other overnight, by one half of a percentage point at its meeting May 16. Friday's report can only increase that possibility.
Census Hiring Lifts Payroll Numbers
The Labor Department on Friday said the hiring of 73,000 temporary census workers was a big factor in boosting payrolls. Excluding the census hiring, employment would have grown by a more modest 267,000, those analysts said. Private employers, meanwhile, slowed their hiring efforts, adding 233,000 workers to their payrolls after an increase of 300,000 in March.
The services industry added 380,000 jobs. That included a 119,000 gain in retail -- nearly five times the gain in March. The Labor Department attributed most of the gain in retail payrolls to hiring at restaurants and bars, which added 80,000 jobs in April after three months of little change.
Many economists also believed that the late Easter holiday was a factor in boosting job growth by pushing some hiring, mostly retail, into April.
Manufacturing payrolls rose 11,000, rebounding from two months of declines. The construction industry, however, reduced payrolls by 55,000 after a 90,000 increase in March.
The report also showed that the jobless rates for African-Americans and Hispanics plunged to record monthly lows. The unemployment rate for blacks fell to 7.2% from the low of 7.3% set in March. The rate for Hispanics dropped to 5.4% surpassing the low of 5.6% in January.
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Highlights
* Payrolls rise 340K, March revised higher to 458K (from 416K) * Unemployment rate reaches a new 30 year low of 3.9%. * Earnings rise 0.4% as March was revised to 0.3%, 3.8% annual rate. * Workweek expanded to 34.6 hours.
Key Factors: Nonfarm Payrolls
* Government payrolls rose 107K as the Census contributed a smaller than expected 73K. * Retail payrolls provided the surprise, up 119K after 23K average growth over the prior 3 months. * Construction payrolls fell 55K after the revised 90K March jump. * Private service-producing industries added 121K. * Manufacturing payrolls rose just 11K
Key Factors: Unemployment Rate
* A drop below January's 30 year low of 4.0% to 3.9% is worrisome given the Fed's concerns about the tightening labor market. * The 3% handle is more worrisome than the 5% or 4% feared in the past as available workers become more scarce.
Key Factors: Hourly Earnings
* A feared 0.4% rise in hourly earnings followed a downwardly revised 0.3% March increase to leave 3.8% annual growth, the upper end of the recent range. * Despite the tightest labor market in a generation earnings growth hasn't pushed through the recent range and stands a half percent below the 4.4% cyclical high in April 1998. * Though an upward trend should be expected with the productivity acceleration, a steady turn higher is a checkered flag for a more aggressive Fed.
Key Factors: Workweek
* The workweek rose back to 34.6 hours where it was in January. * The longer workweek is consistent with the tight labor market as hours replace unavailable employees.
Big Picture
* Here we are in an explosive late stage of the longest economic expansion in US history, with job growth still quite strong despite a 30 year low in unemployment and hourly earnings returning to an uptrend as productivity acceleration steals a large share of its inflation implication. What demands the Fed's attention is the relationship between hourly earnings growth and the unemployment rate as earnings growth begins to accelerate. While earnings stands below April 1998's cycle peak of 4.4% and has trended downward with the unemployment rate, a subtle turn higher is taking place and has caught the Fed's (and market) attention. And although Greenspan has been publicly worrying about the shrinking supply of labor, we still aren't seeing any wage-push inflation due to strong upward trending productivity growth. More output for the same hours worked helps to keep unit labor costs down and allows producers to keep up with rising demand without having to be overly concerned about rising wages. It's good for producers, good for consumers, and good for the economy. Nonetheless, it doesn't come without worry from the Fed policy makers. Higher policy rates are expected with the May 16 FOMC meeting. The question is whether the FOMC speaks with a stronger 50 bp tightening.