April Jobs Report: Mixed Signals

Guest blog by Dr. Tom Cunningham, Economist and MST Advisory Services, Senior Advisor- Economics

We’d rather call it mixed than confusing, but the Bureau of Labor Statistics April jobs report does send signals of unsustainable short-term labor market conditions. 

On one hand, the number of jobs created in April was reported at 164,000, which was both well below expectations of 190,000 and a continuation of last month’s weakness – although the March jobs number was revised slightly upward. Increases were in the professional and business services, manufacturing, healthcare and mining sectors, with other sectors essentially flat.  

On the other hand, the headline unemployment number, U3, declined to 3.9 percent, below both the expected 4.0 percent and the 4.1 percent that has held sway for the last six months. The 3.9 percent figure also deserves recognition as the lowest U3 since December of 2000. The broadest measure of the labor underutilization, U6, also fell 0.2 percent and now stands at 7.8 percent. 

Average weekly hours were unchanged from March. Hourly earnings rose 4 cents, slightly less than last month’s 6-cent increase.  Year over year, hourly earnings are up 2.6 percent.  

The mixed bag:

• Hiring in March and April was disappointing, but it’s clear that, overall, the labor market is tightening.
• Wage growth has not yet accelerated, which suggests there is still some aggregate slack, though that does not appear sustainable.
• The 164,000 jobs created is sufficient to keep up with new entrants to the labor market, but it is not sufficient to maintain GDP growth at a particularly high rate.
• Fewer new jobs combined with essentially stable employer investment suggests slightly slower GDP growth in the near term.
• We have yet to see much in the way of an increase in investment from the private sector that was hoped for as a result of tax reform. In fact, the consensus view that the tax reform act would be a “minor positive” for the economy is looking like a pretty good call.

Hiring is volatile, and two months do not a trend make. But it appears we are in an unsustainable short-term situation. If hiring increases, we should see more pressure on wages; without bigger numbers, we might have to revise near-term GDP forecasts downward.