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April’s payrolls seen painting solid US labour market

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While March’s US employment report wasn’t as bad as the payrolls number indicated, there are plenty of reasons why April’s figures will be brighter – and continue to show a solid labour market.

The first jobs report of the second quarter should show the economy moving past early-year seasonal quirks – both of the methodological kind that have plagued the Labor Department data for several years, as well as the noise emanating from two unusually warm months followed by one that contained a powerful Northeast storm during the report’s survey week.

The share of Americans seeing jobs as "plentiful" is close to a 15-year high. The share of Americans seeing jobs as “plentiful” is close to a 15-year high. Photo: Supplied

That would make the underlying picture clearer: a steady job market with hiring settling into a more sustainable pace and wage growth strengthening, all helping to cushion household balance sheets and make the first quarter’s weak consumption figure look like a blip. The overall bright labour-market picture helped prompt Federal Reserve officials earlier this week to suggest they’re still on track for two more interest-rate increases this year, saying the “fundamentals underpinning the continued growth” of consumer spending remain solid.

“Consumers are probably in the best shape they’ve been in decades,” said Russell Price, an economist at Ameriprise Financial in Detroit. “Wage growth, as the market tightens, is clearly starting to gain traction and I think we’re going to see that continue in the months ahead.”

Economists are penciling in a payrolls increase of about 190,000 after the 98,000 rise in March that was the weakest in 10 months, according to the median estimate in a Bloomberg survey ahead of Friday’s Labor Department report. The jobless rate is expected to edge up slightly while remaining at levels that the Fed considers to be at or near maximum employment. Average hourly earnings probably will post a solid advance as measures of job-market slack show progress.

Labour shortage?

That doesn’t mean all industries will necessarily see gains. Retailers have been particularly hard-hit this year as brick-and-mortars have ceded a particularly large share of business to internet vendors. The sector bled a combined 61,000 jobs in February and March, and economists are split on whether the April figures will help dispel worries that this marks a negative turn for retail beyond weather factors.

“We see some downside risk in retail sector employment”, as online vendors continue to take away business from traditional vendors, Bank of America economists said in a research note before the report.

NatWest economists Michelle Girard and Kevin Cummins, however, see retail bouncing back with an increase close to January’s 35,000. Their overall estimate for 190,000 job gains also includes assumptions that construction jobs will return and that manufacturing will “remain healthy”.

Both construction and manufacturing employers have reasons to be upbeat. The housing market has been sending healthy signals at the start of the spring selling season, and inventories that remain especially low are an even louder call for more workers in an already-tight market.

US factories are being supported by a brightening growth picture abroad. After manufacturing payrolls failed to post an increase in seven months last year, business sentiment is up on the Trump administration’s promises of looser regulation and tax reform, though surveys have shown mixed results around actual hiring.

The Institute for Supply Management’s employment indexes for manufacturing and services retreated in April, indicating companies are adding fewer workers. But one reason could be a labour shortage: The share of Americans seeing jobs as “plentiful” is close to a 15-year high, and small businesses are having more difficulty filling positions than almost any time during the previous expansion in the 2000s, according to surveys from the Conference Board and National Federation of Independent Business.

Earnings seen higher

Economists are more broadly in agreement on the signals that the report should send on wage growth. The employment cost index impressed last Friday with a 0.8 per cent first-quarter gain for the best since the end of 2007, when the last recession began. The Fed’s Beige Book report last month was rife with anecdotes of businesses across the central bank’s 12 districts that were struggling to find enough workers, making wage gains more likely.

“Much more optimistic consumer views of the labour market have supported an increase in the quit rate to cycle highs and made it more difficult for companies to hold onto employees,” Ted Wieseman, an economist at Morgan Stanley, wrote ahead of Friday’s release.

That upward pressure, as well as a calendar quirk for April, should allow average hourly earnings to pick up to about a 0.3 per cent monthly gain after 0.2 per cent in March, according to the Bloomberg survey median. Because the 15th of the month fell on the Saturday of the survey week in April, boosts to pay of workers who receive bi-monthly paychecks should be captured, according to economists including those at NatWest.

Broader measures of labour-market slack, finally on the cusp of pre-recession levels, also point to a pickup in wages. The underemployment rate, which includes discouraged workers, those working part-time for economic reasons, and a group called marginally attached workers, who aren’t working or actively looking for work but want a job, has been favoured by Trump officials over the headline jobless tally. It’s 0.1 percentage point above the 8.8 per cent level from December 2007, when the last downturn began.

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