“All things considered, any lingering possibility of a June rate hike from the Fed is now off the table, with September probably the most likely lift-off date now.”
In a note to clients, Paul Ashworth, chief US economist at Capital Economics, said that the April jobs report has taken the possibility of a June rate hike from the Federal Reserve off the table.
In April, the economy added 223,000 jobs while the unemployment rate fell to 5.4%.
The report disappointed, however, on the wage front, with wages rising 0.1% in April compared to last month and just 2.2% over the prior year. These were both below forecasts.
And so while job gains have been well above trend for the last year or so, wages have been the missing part of the recovery, and the Fed loathe to begin raising interest rates without some more confidence that inflation or workers’ wages will increase.
“Given the encouraging mix of net jobs created,” Ashworth wrote following the report, “it was a bit disconcerting to see that average hourly earnings increased by only 0.1% m/m in April, with the annual growth rate only edging up to 2.2%, from 2.1%. With the alternative employment cost index measure showing that wages increased by a much bigger 2.7% over the past year, the stagnation in average hourly earnings growth is beginning to look very suspicious.”
The report also disappointed on revisions, with March’s already-disappointing figures getting shaved further to show just 85,000 jobs were created in March.
Ashworth notes that this revision “took the gloss off the rebound in payrolls in April.”
Following the report, markets were higher, as a Fed that looks like it won’t act is a friend to markets.