Schroders Quickview: US Jobs growth eases and wages pick up

A slowdown in jobs growth belies some encouraging underlying trends.


Keith Wade

Keith Wade

Chief Economist & Strategist

Job creation slowed in the US last month with the rise in non-farm payrolls coming in at 160,000 against expectations of a 200,000 gain.

Figures for the previous two months were revised down by a cumulative 19,000.

The unemployment rate remained at 5%, but this was due to a drop in the participation rate by 0.2% to 62.8% as the household survey (separate from payrolls) showed a fall in employment over the month.

Contrasting fortunes

So, at first glance this would seem to be a soft report; however, other elements were more robust.

For example, average hourly earnings growth ticked up to 2.5% year-on-year and the average work week increased by 0.4% month-on-month.

The latter is a useful indicator of GDP growth and suggests that the US economy got off to a good start in the first month of the current quarter, thus reinforcing hopes of a bounce back from a subdued first quarter.

The breakdown of job growth showed an interesting reversal of recent trends. Government jobs fell on the month, the first decline since last October.

Private job growth held up well, led by professional and business services. Meanwhile, the retail sector, which has been a driver of job gains recently, went into retreat with shops and outlets shedding jobs in April.

By contrast, the manufacturing sector, which cut workers in February and March, began to hire again in April.

June rate hike?

This is consistent with the manufacturing Institute for Supply Management (ISM) index, which has shown a steady trend toward better jobs growth in a sector that appears to have turned a corner after struggling with excess inventory over the past few months.

Jobs in manufacturing tend to be better paid than retail thus helping to boost wages in the economy. The combination of weaker hiring but better wage growth ties in with an ageing economic cycle in the US.

The Federal Reserve will note this and the potential rebound in Q2 growth, but we will need to see across-the-board strength in activity for the authorities to move as soon as June.

Important information

This communication is marketing material. The views and opinions contained herein are those of the named author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.

This document is intended to be for information purposes only and it is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroder Investment Management Ltd (Schroders) does not warrant its completeness or accuracy.

The data has been sourced by Schroders and should be independently verified before further publication or use. No responsibility can be accepted for error of fact or opinion. This does not exclude or restrict any duty or liability that Schroders has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.

Past Performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.  Exchange rate changes may cause the value of any overseas investments to rise or fall.

Any sectors, securities, regions or countries shown above are for illustrative purposes only and are not to be considered a recommendation to buy or sell.

The forecasts included should not be relied upon, are not guaranteed and are provided only as at the date of issue. Our forecasts are based on our own assumptions which may change. Forecasts and assumptions may be affected by external economic or other factors.

Issued by Schroder Unit Trusts Limited, 31 Gresham Street, London, EC2V 7QA. Registered Number 4191730 England. Authorised and regulated by the Financial Conduct Authority.