U.S. hiring rebounded in April and the unemployment rate dropped below 4 percent for the first time since 2000, while wage gains cooled by more than forecast in a sign that the labor market still isn’t tight enough to spur inflation.
Payrolls rose 164,000 after an upwardly revised 135,000 advance, Labor Department figures showed Friday. Average hourly earnings increased 0.1 percent from the prior month and 2.6 percent from a year earlier, both less than projected. The jobless rate, derived from a separate survey of households, fell to 3.9 percent, the lowest since December 2000, after six months at 4.1 percent.
Treasury yields dipped and the dollar fluctuated following the report. Despite the softer-than-expected wage reading, an unemployment rate drifting further below Federal Reserve officials’ estimates of levels sustainable in the long run may in their view add to upward pressure on wages and inflation. That would keep the central bank on track to raise interest rates in June for the second time this year and once or twice more after that in 2018.
The results may also reinforce forecasts for a rebound in economic growth this quarter after a slowdown in the first three months of the year, with the labor market supporting gains in consumer spending that may be further fueled by tax cuts. Companies in industries from services to manufacturing are hungry for workers, indicating hiring is likely to stay solid.
“Overall, it’s a good report,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. “Slack is getting absorbed” but “the process of that translating into faster wages has been slow. Wages are clearly the one disappointing part of the report.”
For the Fed, though, “this is probably a wash,” he said.
The median estimate of analysts was for a gain of 193,000 jobs, with projections ranging from 145,000 to 255,000. Revisions to prior reports added a total of 30,000 jobs to payrolls in the previous two months, according to the figures, resulting in a three-month average of 208,000.
April’s payroll gain reflected a 168,000 increase in private employment, compared with the median estimate for 190,000. Goods-producing jobs picked up to a 49,000 increase, with construction rebounding to a 17,000 gain after a decline that may have been impacted by weather in March. Manufacturing added 24,000, the seventh straight month at 20,000 or more.
What Our Economists Say
“The continuing decline in unemployment amid tepid wage pressures serves as a stark signal to labor economists, and Fed policy makers, that the neutral level of the unemployment rate, or NAIRU, is considerably lower than in the past several economic cycles—and furthermore, is likely lower than the Fed estimated as of the March Summary of Economic Projections (4.5 percent). Continuing a trend that has been present for much of this cycle, policy makers are likely to further reduce their estimate of the longer-run unemployment rate in the near term,” said Carl Riccadonna and Niraj Shah of Bloomberg Economics.