April Job Figures Erase March Concerns
More new jobs than expected; report reverses March weakness.
Guest blog by Dr. Tom Cunningham, Economist and MST Senior Advisor
The May 5 release of the April jobs report from the Bureau of Labor statistics was cause for celebration, and perhaps relief. Both the number of new jobs and the key unemployment rates were better than expected. April’s 211,000 jobs created beat projections of 180,000-190,000, and more than doubled the previous month’s disappointing figure of 98,000.
The headline unemployment rate (U3), expected to rise slightly from 4.5 percent to 4.6 percent, declined to 4.4%. The labor underutilization rate (U6) also fell, from 8.9 percent to 8.6 percent. Both continue what are now long-term trends and position the labor market solidly on track to “full employment.”
As to the various surveyed sectors, leisure and hospitality, business services, healthcare, and financial services all showed strength. Other sectors showed a slight increase or were flat; no sector showed a notable loss. The average amount of hours worked in a week improved slightly, and hourly earnings continued their recent trend upward, growing 2.5 percent on a year-over-year basis.
All in all, the report suggests that the weak first quarter GDP number, an anemic 0.7 percent growth rate which would translate into an annual growth rate of around 2 percent, could be transitory as opposed to a sign of a slowing economy. In fact, a weak first quarter GDP has been typical in recent years.
The positive April jobs report contrasts with the continued uncertainty about the economy for the banking community. As expected, the Fed left policy unchanged at this week’s meeting, though a couple of moves expected in the coming year should result in a gradual increase in the short end of the industry yield curve. Inflation appears headed towards the 2 percent target.
President Trump has talked recently about banking issues. Among the many ideas floated is the possibility of breaking up the biggest banks. Moreover, there seems to be a genuine effort toward lightening the regulatory load for the banking sector.
While there has been effort to mitigate some of the cost of regulation on smaller banks, the burden of regulation will remain heavier for smaller institutions simply because of a smaller base over which to spread the fixed costs portion of compliance. Rolling back some of the demands of Dodd-Frank or Sarbanes-Oxley, or both, which has been discussed, could help smaller institutions. However, the devil is in the detail. It is easy to talk about easing regulatory burden, but until there are concrete proposals, there is no way to project outcomes or consequences. Exactly how regulations will be reduced is a contentious issue, and a large part of change will require congressional action. In the meantime, the specter of rule changes tends to inhibit activity.
In the meantime, other conditions continue to normalize, even if it is difficult to know what “normal” looks like. We clearly are in a different economic climate than in the mid-2000s. Regardless of Washington’s intentions, both financial markets and the overall economy have changed substantially. Regulatory reform can’t turn that clock back, but it possibly could make it easier for institutions to flourish in the new normal – whatever that is.
About the Author
Tom Cunningham holds a Ph.D. in economics from Columbia University and was senior economist with the Federal Reserve Bank of Atlanta from 1985 to 2015. Mr. Cunningham serves as a consultant to MST in the creation and ongoing development of the MST Virtual Economist and is the MST Advisory economics specialist. Tom will be a featured speaker at the 2017 National ALLL Conference in May.
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