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Wall Street to Your Street
Employment Climbs Slightly, as Do Wages & Hours
May 10, 2016 | Russ Swansen, Chief Investment Officer
Employment continued to rise in April, although not quite at the rate of previous months – thanks to a weakening labor demand in the energy industry (Exhibit 1). Nonfarm payroll employment rose by 160,000 in April, and the unemployment rate was unchanged at 5.0%, according to the U.S. Department of Labor.
In addition to the increase in employment, wages increased by 0.3% compared to the previous month – an average of 8 cents an hour – while average week hours rose slightly to 34.5 hours in April, compared to 34.4 hours in March (Exhibit 2). On a year-ago basis, average hourly earnings rose 2.5% in April, while CPI-U, a measure of inflation, rose just 0.9% between March 2015 to March 2016.
The previous two months' nonfarm payroll employment was revised down by a total of 19,000. The leading sectors for job growth were professional and business services, health care, and financial services.
On the down side, the labor force participation rate fell in April, as did the employment-to-population ratio.
The "real" unemployment rate, which is a separate, more inclusive measure of unemployment, fell one-tenth of a point to 9.7%.1 The labor force participation rate, which had been moving up recently, dropped to 62.8% in April, which is the lowest level since January. The total labor force contracted by 362,000.
What this means for the economy
While the continuing increase in employment is a good sign for the economy, the increase in April was dampened by layoffs in the oil, information technology and retail sectors, according to a separate report by the outplacement firm Challenger, Gray & Christmas.
According to that report, the energy sector had 19,759 job cuts in April, and has had a total of 72,660 for the year.
- Near "full employment." The unemployment rate of 5.0% is very close to what the Federal Reserve considers full employment (Exhibit 3). Federal Reserve Board Chair Janet Yellen has said she considers 4.8% to be full employment.
- Higher wages and longer work week both bode well. Although both increases were slight, they are still moving in the right direction.
- Initial unemployment claims have continued to drop to an extraordinarily low level – particularly when factoring in population growth (Exhibit 4).
- There are still a couple of areas within the labor market that we believe have room for improvement. For instance, the number of individuals working part time who would prefer to work full time has been improving, but still has a long way to go, in our opinion (Exhibit 5).
- The number of long-term unemployed also remains at an elevated level (Exhibit 6).
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1 The nonfarm jobs number—officially the "nonfarm payrolls" number—is derived from the establishment survey, which has the larger sample size and hence the smaller margin of error. A month-to-month change of about 100,000 nonfarm payrolls is statistically significant. The unemployment figure is derived from the household survey, which also seeks to tally the number of people working in the United States. It's the more expansive survey; unlike the employment survey it includes self-employed workers whose businesses are unincorporated, unpaid family workers, agricultural workers and private household workers. But the household survey also has a smaller sample size and larger margin of error. As measured by the household survey, the threshold for a statistically significant change in the number of people working is about 400,000.
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