This morning the Department of Labor announced that the U.S. economy added +288k non-farm payrolls in April, ahead of expectations for additions of +218k. Additionally, March figures were revised upward by +11k, from +192k to +203k. Monthly payrolls have now increased every month so far in 2014, bringing the 6-month moving average of jobs added to +198k per month. This month’s additions brought the headline unemployment rate down to 6.3% (from 6.7% last month), and the underemployment rate down to 12.3% (from 12.8% last month). While on the surface the jobs number looked quite robust, the internal fundamentals again remained weak, with average hours worked per week flat at 34.5, and wage growth flat M/M and +1.9% Y/Y. Furthermore, the labor force participation rate dropped -0.4% to 62.8%, with a whopping -806k people exiting the labor force.
Equity markets seemed unfazed by the number, with the S&P 500 barely budging on the news, signaling that either a strong jobs number was expected, the underlying fundamentals were indeed weak – or a combination of both. It is likely that the overall health of the labor market is weaker than the 6.3% unemployment rate would lead one to believe. The labor force participation rate remains at historically depressed levels, the economy continues to add low-quality jobs (i.e. temporary workers and leisure/hospitality jobs), average hours worked has yet to rise, and wage growth is barely keeping up with inflation.
The U.S. economy is recovering – slowly – and today’s jobs number doesn’t change our views.