May 4, 2018 / 12:52 PM / 22 days ago

Instant view - U.S. April payrolls up less than expected

NEW YORK (Reuters) - U.S. job growth increased less than expected in April and the unemployment rate dropped to near a 17-1/2-year low of 3.9 percent as some jobless Americans left the labour force.

The Labor Department’s closely watched employment report on Friday also showed wages barely rising last month, which could ease concerns that inflation pressures were rapidly building up, likely keeping the Federal Reserve on a gradual path of monetary policy tightening.

HIGHLIGHTS:

*April U.S. nonfarm payrolls up 164,000, versus consensus of up 192,000, and upwardly revised March gain of 135,000

*U.S. April labour force participation rate 62.8 percent vs March 62.9 percent

*April jobless rate 3.9 percent, below consensus for 4.0 percent and March’s 4.1 percent

*April average hourly earnings for all private workers was up 0.1 pct, below consensus for up 0.2 pct and March’s downwardly revise March 0.2 percent gain.

COMMENTS:

QUINCY KROSBY, CHIEF MARKET STRATEGIST, PRUDENTIAL FINANCIAL

“Today’s report underscores the tug-of-war in the market: is the weaker headline number and slight contraction in wages an indication of economic growth slowing, or is it another sign of the labour market reaching full employment.”

“Positive for markets is that Treasury yields have pulled back, the dollar weakened, and fears of wage-induced inflation marching higher have been assuaged by this report.”

“Still, the tug-of-war will continue as market participants need evidence that the economic backdrop remains robust, while the 3.9 percent unemployment rate suggests an economy that is creating enough jobs for qualified workers.”

“This report will fade into today’s trading session as market participants wait for headlines stemming from trade talks in China.”

STEVEN ENGLANDER, HEARD OF RESEARCH AND STRATEGY, RAFIKI CAPITAL, NEW YORK:

“I think next week we are going to see a bunch of Fed speakers expressing confidence in the economy, basically telling the market that they drew the wrong conclusion from the statement. I think that this is going to blow over, but for today the market, on a scale of minus 10 to plus 10 on where the market views these numbers, they are not catastrophic, but they are probably at minus 3 or minus 4. Given that the market is long dollars, they are bit short bonds and concerned on equities, we might get an exaggerated reaction today just because the numbers are hitting the market at a vulnerable point.”

CHRIS GAFFNEY, PRESIDENT OF WORLD MARKETS, EVERBANK, ST. LOUIS, MISSOURI

“I think this does nothing to change the Fed. It will hike in June. The economy is healthy but not overheating. Wages are not moving. We are not seeing wage pressure, which we need to see before the Fed accelerates in rate-hike path. The dollar is giving back some of its gains and Treasury yields are falling. This is a good report for the stock market with the unemployment rate below 4 percent which should give consumers some confidence.”

ART HOGAN, CHIEF MARKET STRATEGIST, B. RILEY FBR, NEW YORK

“The more interesting reaction is going to be in the yields. You see the 2 and 10 year backing out a little bit.” 

“It was a mixed report. The headline numbers are disappointing but there’s nothing scary about inflation. There was fewer jobs created in the last month than consensus but the month before was revised higher. That makes this a benign report.  Average hourly earnings increased but by less than expectations.”

“We’ve yet to see a pick up in employment as it pertains to the tax reform but that may be structural in terms of the job openings that exist being difficult to fill.”

“I think its not going to be a market moving event today and we’ll focus on any messaging around trade talks with China.”

COLLIN MARTIN, FIXED INCOME STRATEGIST, SCHWAB CENTER FOR FINANCIAL RESEARCH, NEW YORK

“The headline jobless rate dropping below 4 percent will grab some attention. But looking beyond that, most of the details came in relatively weak. This is a bit disappointing on the earnings front after the employment cost index we received last week. Still this is not enough for the Fed to pause. They will still hike in the June meeting. If people were worried about a faster pace of hike. This report should calm those concerns. We are seeing yields dropping across the curve. The curve will likely resume its flattening bias in the long term, but it won’t invert in the foreseeable future. We see some forces that could push up long-term yields such as Treasury supply in the near term.”  

MICHAEL ARONE, CHIEF INVESTMENT STRATEGIST, STATE STREET GLOBAL ADVISORS, BOSTON 

“It’s a goldilocks number in that the top line missed a little bit from consensus expectations however you had the unemployment rate drop below 4 percent, lowest rate since December of 2000. The key, I think to every single month’s jobs report continues to be the average hourly earnings. Investors continue to look there for signs of inflation and we really didn’t get any.

“Particularly given the length of this particular business cycle, job growth at these levels continues to be quite strong, and the fact we are not seeing a material pickup in wages continues to be the mystery of the jobs reports. The economy can withstand growing jobs – the three-month average is a little north of 200,000 with an unemployment rate below 4 percent – that signals the U.S. economy labour market continues to be on solid ground.”

“I don’t see this particular report changing the Fed’s path or the recent trend. You have signs the labour market continues to be strong. The Fed will continue to scratch its collective head on why wages aren’t growing, they continue to believe that has to happen and we are still in that dynamic. But with that, even with this week’s FOMC meeting and subsequent release, the Fed showed no indications of altering its path towards rate hikes this year.”

MARKET REACTION:

STOCKS: Stocks slightly pared losses. S&P eMini futures were last down 0.3 percent. BONDS: Benchmark yields eased, with the ten-year last at 2.9141.FOREX: The dollar cut modest gains, with the dollar index against a basket of currencies .DXY last up 0.14 percent.

Americas Economics and Markets Desk; +1-646 223-6300

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