US unemployment falls to fresh cyclical low

US average hourly earnings data were slightly disappointing in April, but the non-farm payroll figure was robust and the unemployment rate continued to decline.


Non-farm payroll employment rose by a solid 211,000 in April, above consensus expectations.

Unexpectedly, the US unemployment rate continued to fall from 4.5% in March to 4.4% in April, and is now significantly below the Fed’s median estimate for full employment (4.8%).

However, wage data were somewhat disappointing, with the pace of hourly wage growth falling from a downwardly revised 2.6% in March to 2.5% in April while the strength of job creation last month is partly due to unusually warm weather and followed a soft reading for March.

All in all, today’s employment report was upbeat. Admittedly, average hourly earnings disappointed somewhat, but job creation remains basically healthy. In our view, this rosy picture reinforces the probability that the Fed will hike rates in June.

We are not modifying our scenario for US economic growth and monetary policy in light of the latest statistics. Our forecast that US GDP will grow by 2.7% q-o-q annualised in Q2 remains unchanged, as do our projections for yearly average growth of 2.0% in 2017. We also continue to forecast that the Fed will hike rates again by 25 basis points in both June and September, and that later this year it will likely announce the start of balance sheet reduction at the beginning of 2018.


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