US labour market: A gratifying quarterly balance despite weak March data; still only moderate wage increases

In the United States, the unemployment rate in March was for the sixth consecutive month at the low level of 4.1 percent. At the same time, the number of employees rose by “only” 103,000 persons on the February figure, meaning the growth in jobs lagged visibly behind the strong increases of prior months. All the same, the labour market balance for the first quarter need not shy comparison. Firstly, just short of 620,000 new jobs were created, the strongest rise in six quarters. Secondly, the balance is even more gratifying if one excludes the public sector, as of late jobs have tended to be cut in that sector. In other words, since the beginning of the year the private sector has increased the rate at which it is creating jobs, so that focusing solely on the weaker March data would paint an inaccurate picture in this regard.

The impression of a job engine that continues to run smoothly, fuelled in equal part by the service sector and manufacturing, remains flanked by modest wage trends. Thus, according to the latest labour market report, hourly wages paid rose 0.3 percent on the month, after having only edged up 0.1 percent in February. Given that the labour market recovery has now lasted for seven years, the increase on March 2017 of only 2.7 percent was very restrained.

To our mind there is only a slight danger that, despite all the ongoing job creation, wage increases will pick up sharply in the coming months. What speaks against major wage demands being successful is firstly the persistent inflow of labour from the so-called “hidden reserves” and, secondly, advances being made in automation that threaten countless service-sector jobs. In order to avoid any false impression arising: In the coming months the pace of wage increases will rise. Nevertheless, on average for the year we only expect wages to climb about three percent. The resulting boost to inflation will presumably be limited and will grant the Fed sufficient scope to uphold its goal of modestly tightening the monetary policy reins.

On balance for the quarter, the key sentiment indicators hardly give cause for nascent pessimism as regards the US economy and labour market. The ISM surveys reveal a median for both industry and the service sector for Q1 that is not only above that for prior quarters, but is in fact only just under 60 points. In other words, this far exceeds the growth threshold of 50 points.

We ultimately expect that the further course of the year will see a robust upturn in the US labour market. Manufacturing looks currently set to continue to be a stimulus, i.e. it will not just be the service sector that plays its “usual role as job engine”. It is, however, highly doubtful whether the President’s protectionist measures and threats will trigger a sustainable turnaround in the number of industry jobs. At present, industrial employment is benefiting above all from the good business being done by aircraft makers as well as the recoveries in the construction and oil sectors.


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