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Saturday, 9 May 2015

US unemployment falls to 7-year low

223,000 job gains in April

The Bureau of Labor Statistics released its nonfarm payroll figures for April 2015 which showed a pleasing 223,000 jobs added in the month.

However, the equivalent figure for March was revised down from 126,000 just 84,000 which took some of the gloss off the result.

The hiring slowdown in March was attributed to a West Coast port strike which apparently played havoc with supply, compounded of course by ordinary winter weather.

The optimistic viewpoint is that April possibly saw a rebound.

As my chart below shows payroll gains have punched at above 200,000 in 13 of the past 14 months.

Cumulatively total nonfarm payroll employment continues its six year recovery to a total of 141.3 million from a 2009 nadir of well under 130 million.

The slowdown in the first quarter means that average monthly payroll gains across the 2015 year-to-date are now tracking at 194,000, which is some way below the impressive average of 259,000 per month experienced across the 2014 calendar year.

The unemployment rate ticked down to 5.4 per cent, being the lowest level in seven years.

Despite a continued decline in mining employment (-15,000) further job gains were recorded in construction (+45,000), health care (+45,000), transportation and warehousing (+15,000), and professional and business services (+62,000).

The missing link continues to be wages growth. 

In April, average hourly earnings for all employees on private nonfarm payrolls rose only by 3 cents to $24.87, with average hourly earnings up by 2.2 percent over the past year.

However, the recently released Employment Cost Index showed wages costs up by 2.6 per cent which is the strongest gain since 2008.

The wrap

Strong payroll gains and projected rate hikes in the US have the potential to help the Reserve Bank in Australia as the strengthening of the greenback helps to improve our export prices.

This result was somewhat neutral in this regard.

Despite the strong headline result the revision to the March data combined with soft wages data suggests that the first rate hike in the US is still likely to be some months away. 

Analysts continue to watch for signs that the US is approaching full employment, but the soft wages data suggests that there is a little way to go yet.