Daily Market Color

Unemployment Rate Hits 17-Year Low, Wage Growth Disappoints


Modest Jobs Growth, Falling Unemployment & Tepid Wage Inflation

The Labor Department’s employment report for April exhibited nonfarm payroll growth rebounding from a six-month low.  The 164,000 seasonally-adjusted pace fell below expectations of +193,000, albeit March’s figure was upwardly revised to 135,000.  Payroll additions were broad-based, with a 119,000 increase in hiring at service providers and a 49,000 rise in goods-producing jobs.  In the first four months of 2018, employers have averaged 200,000 in payroll additions per month compared to the 182,000 average throughout 2017.



The unemployment rate declined more than expected to 3.9% (lowest since December 2000), breaking a streak of six consecutive months at 4.1%. The underemployment rate reported similarly declined, shifting 0.2% lower to 7.8%, while the labor force participation rate slid to 62.8% (62.9% prior).  Sub-4% unemployment has only been recorded a handful of times over the past 70 years, including the dot-com bubble in 2000, Vietnam War in the late 1960s/early 70s and Korean War in the 1950s.      



Typically, such low levels of unemployment have been a harbinger of increases in wage growth given the pressure on employers to both keep their top performers and attract new, scarce qualified talent.  However the wage inflation figures in today’s report showed no sign of this and until this changes, is likely to prevent the Fed from following a more accelerated path of rate hikes.  Average hourly earnings climbed a marginal 0.1% MoM (+0.2% expected), and 2.6% YoY (+2.7% expected), with 0.1% downward revisions to the prior month recorded as well.  Separately, the average work week for employees remained unchanged at 34.5 hours.



Stocks Rise in Response to Labor Data

US equities finished the week strong as concerns over an acceleration in short term rates were temporarily eased with the moderate wage growth figures.  Such uncertainty was further curtailed by comments from Federal Reserve Bank of New York President William Dudley, who earlier today stated his belief that the persistently low inflation in recent years had not been fully extinguished.  “I wouldn’t quite declare victory yet,” Dudley explained, “The inflation data goes up and down month to month, but we have made some progress and I am certainly happy where we are today.”



All three major US stock indices rose on the day, with the NASDAQ posting a 1.7% gain while the DJIA and S&P 500 climbed 1.4% and 1.3%, respectively.  US Treasurys reversed an early day rally and yields/swap rates finished 1-3 bps higher across the curve.  The yield on the 10-year note is poised to close the week near 2.95%, roughly 45bps higher than the 2-year Treasury yield.  In FX markets, the US dollar climbed 0.15% against major currencies, with its largest rise recorded against the euro (+0.25%).


Oil Hovers Near Multi-Year Highs

Crude oil futures closed at their highest level since November 2014 today as energy markets continue to evaluate the prospect of additional sanctions against Iran.  President Trump has designated May 12th as the deadline for European officials to fix the current deal that contains “terrible flaws” and threatened to remove the existing sanction relief if this not accomplished.  WTI crude closed 1.3% higher at $69.75/barrel and touched as high as $69.97/barrel during the session.  


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