Job Growth Continues While Wage Gains Show Some Moderation

  • Nonfarm payrolls increased 428 thousand with those gains fairly  widespread. Expectations were for 380 thousand jobs and it matched March’s 428 thousand new jobs. The largest gains came in leisure and hospitality, in manufacturing, and transportation and warehousing. However, total nonfarm payrolls remain 1.2 million below pre-pandemic levels in February 2020. Unsurprisingly, leisure and hospitality leads the deficit with 1.4 million less jobs than in February 2020.

 

  • Probably the most watched indicators in this report are those involving wages given the recent accelerating gains noted in other wage-related metrics of late. In this regard, the report  was mixed. Average hourly earnings rose 0.3% for the month, missing the 0.4% expectation but March’s 0.4% initially reported gain was revised up to 0.5%. The year-over-year pace of wage gains matched expectations at 5.5% and that is off one-tenth from March’s 5.6% increase. In all, wage gains remain historically high but at least there wasn’t an acceleration of gains noted for April. That won’t ease pressure on the Fed, but it does deliver another blow to those hoping to see a 75bps hike.

 

  • One indicator the Fed will definitely not like is the two-tenths decrease in the Labor Force Participation Rate. It declined from 62.4% to 62.2% as 363 thousand people left the labor force. Powell noted several times in the Wednesday press conference the 11.5 million in job openings which is nearly 2x the level of unemployed persons. One way to fill those open positions and loosen the tightness in the labor market is to get more people into the labor force. The rate had been increasing of late so one month does not a trend make, but it needs to move higher and approach the pre-pandemic level of 63.4% to relieve some of the tightness in the labor market and ease wage pressures.

 

  • The unemployment rate remained at 3.6% for a second month, missing the 3.5% expectation, as the number of unemployed declined by only 11 thousand.

 

  • It’s curious that with wage gains at historically high levels, and with job openings at all-time highs, we didn’t see significant increases in the labor force and a bigger decrease in the unemployed. It could be just the vagaries of seasonal adjustments clouding the data, and that is probably how the Fed will treat it as well and look ahead to next month’s data.

 

  • In all, while the moderating wage gains will be welcomed at the Fed, the year-over-year rate still remains historically high and with no widening in the labor force, unless the economy starts to slow, wage pressures could return in May. This report will definitely keep the Fed’s 50bps rate hikes for the next several meetings clearly on track.

 

  • Treasuries initially took solace in those wage numbers and shorter maturities moved briefly into the green, but the buying was short-lived and selling has since resumed. Traders apparently are not willing to press their bets on a slim improvement in the wage outlook, especially with CPI looming next Tuesday. While expectations for CPI are that monthly and YoY numbers will moderate, traders are no doubt hesitant in light of this week’s volatility.

 

Average Hourly Earnings (YoY)

Source: Bloomberg


 

Agency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 2.68 2.94 3.08 3.28 3.61 4.07
0.50 2.66 2.91 3.02 3.17 3.47 3.96
1.00 2.66 2.88 2.99 3.13 3.37 3.83
2.00 2.87 2.93 3.05 3.26 NA
3.00 3.01 3.20 NA
4.00 3.15 NA
5.00 3.11 NA
10.00 NA

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Published: 05/06/22 Author: Thomas R. Fitzgerald