Weak patches visible behind better US jobs data

America's jobs market has recovered some of its poise after hiring was crushed in March by the freeze that hit the North East Coast. The economy added 223,000 jobs in April, according to the Labor Department, and the jobless rate slid to 5.4 per cent. Yet the rebound was not strong enough to shift expectations that the Federal Reserve will hold off moving on interest rates at its next meeting in June. That is because, behind the robust headline indicators, patches of weakness are still showing in the official numbers. As economist Michael Feroli of JPMorgan Chase put it, the latest figures lack much "sizzle".

1. A thaw in April

The economy added only 85,000 jobs in March - less than previously estimated - but April's data were substantially better, with a rise that was only marginally shy of Wall Street expectations. Monthly payroll gains have been larger than 200,000 in thirteen of the past fourteen months in the US - something that hasn't happened for two decades. However the pace is softer than in 2014; payrolls growth has averaged slightly less than 200,000 a month so far in 2015 compared with 240,000 last year.

2. Unemployment is heading down

The pace of hiring should be easily strong enough to keep the unemployment rate headed down, given growth of around 110,000 is needed to hold it steady according to the Atlanta Fed jobs calculator. The Fed has estimated that the long-term unemployment rate is somewhere between 5 per cent and 5.2 per cent, which is not much lower than the 5.4 per cent now. If the recovery continues, the economy could hit full employment in the second half of the year, teeing up higher rates. Even now the jobless rate is now just one percentage point above the trough of 4.4 per cent it reached in early 2007. At that time the Fed Funds rate stood at 5.25 per cent, compared with near-zero today, economists at Fathom Consulting point out.

3) Weak wages

Wage growth is still remarkably tepid, if you believe the indicators contained in Friday's labour report. Average hourly earnings rose 0.1 per cent on the month, leaving the annual rate of wage growth at just 2.2 per cent. That is a far cry from the 3-3.5 per cent pace that some Fed officials see as more normal in a healthy economy. That points to continued slack in the labour market and will reinforce the calls of those who think the Fed should let the recovery run uninterrupted for longer before lifting rates. Damon Silvers, policy director at the AFL-CIO, says the numbers "continue the long-term trend of wage stagnation." That said, another measure of wage growth - the Employment Cost Index - last week showed a sharp acceleration in first-quarter wages to 2.8 per cent. As Harm Bandholz of UniCredit points out, that is slightly higher than when the Fed started its last rate-lifting cycle in 2004.

4) Still some slack

The labour force participation rate was modestly higher at 62.8 per cent, but it shows no sign of breaking out of its recent range of 62.7 to 62.9 per cent and remains near its lowest levels since the 1970s. A measure of underemployment that includes people working part-time because they can't get a full-time job dropped to 10.8 per cent. That is the lowest since August 2008, but still well above the pre-crisis trough of 7.9 per cent in 2006.

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