May 4, 2018

  • Headline: U.S. employment rose by 164,000 jobs in April against a consensus expectation of 195,000 jobs, thus marking the second consecutive month of below-consensus job creation. April’s number was also lower than the average monthly jobs gain of 191,000 over the past 12 months. The unemployment rate, however, dropped more than anticipated to 3.9%—the lowest level since December 2000. The decline ended a six-month streak of the unemployment rate staying at 4.1%. While February’s jobs growth was revised downward, March’s was revised upward. On net, employment gains in February and March were 30,000 more jobs than previously reported. Average hourly earnings rose by 4 cents in April and 67 cents or 2.6% from a year ago. The labor force participation rate fell to 62.8% from 62.9% in April.
  • Executive Summary: Overall, the jobs report continued to offer a mixed picture of the economy. Despite fewer-than-expected jobs gains, unemployment fell. While the decline in unemployment can be explained by the exit of 236,000 Americans from the workforce, thus leaving a smaller pool of talent to hire from, wage growth continued to puzzle as it slowed despite a shrinking labor pool. Additionally, the confusion arises because, on the one hand, weaker-than-expected headline employment numbers and slower wage growth would seem to suggest that economic growth may be slowing. On the other, below consensus or slower jobs gains may be an indication that the labor market is reaching its limit, making an acceleration in wages imminent. A key metric to watch for in the coming months is the underemployment rate, which declined in April to 7.8% from 8.0%. The still-high underemployment rate is often viewed as a sign that the labor market isn’t yet at full capacity and the reason wages haven’t increased significantly.
  • Wage Inflation: Annualized wage growth of 2.6% was slightly below an expected 2.7% increase. The slower-than-anticipated wage growth should keep a lid on investors’ fears of runaway inflation. While the Federal Reserve has already increased rates once this year, tepid wage growth should keep the Fed on track for only two additional rate hikes this year. Moreover, given sluggish wage gains and mixed data on inflation, the Fed-Fund futures point to a diminishing probability of a third additional rate hike, which now stands at 38% from nearly 50% a week ago. Additionally, today’s wage data likely will calm bond markets, as the 10-year Treasury yield, which spiked to just over 3% on April 25 for the first time in four years, will likely retrace to lower levels.
  • Job Growth Outlook: Without a sharp increase in labor force participation, job growth likely will moderate in coming months, as employers find it difficult to fill skilled positions from the current workforce. Recent tax reform is expected to increase the deficit, further placing upward pressure on interest rates. But it also is likely to provide a boost to the job market, potentially extending the current cycle. Nevertheless, gains will likely be modest given that the economy is operating at near-full capacity. While financial market volatility has risen slightly, a trade dispute between the U.S. and China remains focused on minor import tariffs.
  • CRE Sector Employment:
    • Construction: The construction sector added 17,000 jobs after losing 10,000 jobs in March. Much of April’s increase was due to non-residential specialty trade contractors that added 7,300 jobs, while employment in non-residential construction rose by 5,100 jobs. 
    • Industrial: Manufacturing payrolls rose by 24,000 in April. Much of the gain was in the durable goods component, with machinery adding 8,000 jobs and fabricated metal goods production adding 4,000. The manufacturing sector has added 245,000 jobs over the past year, with the durable goods component accounting for three-quarters of the increase.
    • Retail: Retail employment added 1,800 jobs in April, after adding 6,200 in March.
    • Office: The professional and business services sector added 54,000 jobs in April, and 518,000 over the past 12 months.