US companies expanded payrolls at a sharply stronger pace in April, the Labor Department reports. Following a softer round of growth in March, nonfarm payrolls rose 236,000 last month—well up from the previous 179,000 gain. The pickup in growth pushed the one-year trend for private payrolls up to a robust 2.0% pace, a three-month high.
Looking past the monthly volatility and focusing on one-year changes strongly suggests that the labor market continues to expand a healthy pace and will appears set to continue on this path for the near term.
Today’s report is “clearly telling you this economy is still chugging along very nicely,” says Torsten Slok, chief economist at Deutsche Bank Securities. “It is inflationary in the sense that wages did go up but they didn’t go up as much as we had expected.”
Will today’s strong labor-market report convince the Federal Reserve to rethink its decision to pause on raising interest rates for the foreseeable future? No, predicts Chris Zaccarelli, chief Investment officer for Independent Advisor Alliance. In comments distributed to the media today, he says that “the Fed is likely unconcerned with the stronger-than-expected job creation number – they probably welcome it – but what they are keeping a close eye on is the change in average hourly earnings, which came in at a robust +3.2%.” He adds that “it’s our expectation that the Fed is willing to let the economy run ‘hot’ – and stay on the sidelines – until inflation becomes a much greater concern.”
Inflation data, however, remains subdued. Monday’s March update of core PCE, which is the Fed’s preferred inflation yardstick, ticked down to a year-over-year rate of 1.6% — an 18-month low.
“Wages may have been slightly tepid this month relative to expectations but are still growing at just about the highest rate this cycle, and the unemployment rate is at multi-generational lows,” notes Eric Winograd, AllianceBernsetein’s senior economist.
The combination of solid growth in payrolls and low inflation is an economic sweet spot, if it lasts. At the moment, the latest data makes it challenging to argue that it won’t.
In short, today’s update reaffirms what’s been conspicuous in US data writ large in recent history: recession risk remains low for the US.