US wage growth trending higher amid weaker job gains in March
March data shows a gently rising trend in wage growth which is supportive to household spending, says Janet Mui.
The US labour market report in March was mixed, with a modest pick-up in wage growth while employment gains disappointed. Average hourly earnings rose 0.3% Month-on-Month and picked up from 2.6% Year-on-Year (YoY) to 2.7% as expected. The 3-month average annualised rate reached 3.2% in March (up from 2.9% in February), the fastest increase since February 2009, which is evidence of strengthening momentum and what we expected. Average weekly hours remained steady at 34.5 in March and average weekly earnings growth hit 3.3% YoY, providing a supportive backdrop for consumer spending.
Nonfarm payroll was up only 103,000 in March compared to an expected 185,000, so significantly less than had been signalled by the Automatic Data Processing (ADP) employment report. This is likely weather related as job gains in construction and retail trade were negatively impacted by snowstorms. However, the prior month’s payroll was revised up to a whopping 320,000 (from 287,000), sustaining the 3-month average above 200,000. This still represents a very robust hiring trend, with the outlook remaining positive given the surge in job openings to a record high in January, and jobless claims near a record low. Overall, the labour market remains very healthy.
The unemployment rate remained at 4.1% (vs an expected 4.0%) for the sixth consecutive month, while the labour participation rate fell by 0.1% to 62.9%. There seemed to be some resistance for unemployment to fall more rapidly than markets anticipated. The Federal Reserve (Fed) expects the unemployment rate to be between 3.6% and 3.8% by the end of 2018, and the current trajectory of modest wage growth and steady unemployment rate suggest no aggressive tightening is needed from the Fed this year. Given rising tensions in trade protectionism and heightened volatility in equity markets, the Fed is likely to sound cautious. Market expectations are in line with the Federal Open Market Committee’s (FOMC) rate expectation of two more hikes in 2018, but are still well behind the FOMC for 2019 and beyond.
Janet Mui, CFA is the global economist at Cazenove Capital, the wealth management division of Schroders. Janet is responsible for the formulation and communication of Cazenove’s top-down views. She is a member of the investment committee that oversees strategic and tactical asset allocation at Cazenove. Janet is also the macro spokesperson and a regular commentator at major media outlets including the BBC, Bloomberg and CNBC.
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