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  Dr. Sohn's Commentary

April U.S. Payroll Report

May 04, 2018

The economy added 164,000 jobs in April continuing its recovery. The increase was focused on professional services, healthcare and manufacturing with the remaining sectors pretty flat. The February and March numbers were revised up by 30,000. The unemployment rate dipped to 3.9 percent after six months at 4.1 percent. Wage gains rose 0.1 percent for the month amounting to 2.6 percent from a year ago.


The tight labor market has begun to show stress. In addition, the ongoing fear of trade war, especially with China, could is causing employers to be more cautious about hiring until the smoke clears up. Trade frictions will hurt more than help in the job market. Even though the jobless rate fell to 3.9 percent---first time since the Clinton era---after six months at 4.1 percent, the employment gain was somewhat less than anticipated. In many cases, there aren’t enough workers to  hire from Silicon Valley to construction sites. One of the reasons for the drop in the jobless rate is the drop in the labor force by 326,000. Without the fall in the labor force, the unemployment rate would be higher than 3.9 percent. Nevertheless, the job market is expanding at a moderate rate with the average increase of 208,000 jobs over the past three months.  Going forward, the Trump tax cut will continue to boost employment and economic activities. The direction of the trade negotiation with China will have a meaningful effect on employment.


Wage gains have remained at 2.6 percent from a year ago or 0.1 percent gain from March.  All indications shows that wages will rise at a faster pace in the future as the economy expands and the labor market is tight.  A more comprehensive indicator of earnings---Employment Cost Index---has shown healthy increases in overall pay.


The moderating employment picture will encourage the FOMC to raise the interest rate three times in 2018, not four.

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