Most aspects of the US jobs data released on Friday morning disappointed expectations, but were unlikely disappointing enough to sway the Federal Reserve from its firm track towards higher interest rates through 2018 and beyond. The knee-jerk market reactions to the lower-than-expected job creation and wage growth figures were a drop in the US dollar and a pop in gold. As the dust settled, however, the recently rallying dollar began to rise once again, and gold continued to trade under pressure.
The US Labor Department reported that 164,000 new non-farm jobs were added to the US economy in April, against previous expectations of 190,000. Though on first glance this was a significant disappointment, a bright spot could be found in the revisions of previous months’ data. March was revised up from 103,000 to 135,000, while February was revised down from 326,000 to 324,000. On a net basis, those revisions added 30,000 jobs to the numbers previously reported.
Wage growth, however, was the major disappointment. April’s average hourly earnings came in at a 0.1% increase month-over-month against prior consensus expectations of +0.2% (2.6% year-over-year versus the previous 2.7%). Additionally, average hourly earnings for March were revised down to +0.2% from the originally reported +0.3%. The expectation of rising inflation has been a key theme in recent months, and wage growth has been a substantial market focus. Friday’s lower-than-expected wage numbers may have placed somewhat of a damper on those inflation expectations, and government bond yields initially fell sharply as a result.
The unemployment rate, on first glance, was better than expected at 3.9% against prior expectations of 4.0% and after the previous month’s 4.1%. While this marks a new trough in the unemployment rate, the low was aided by a drop in the workforce participation rate.
The initial market reactions immediately after the release were as might have been expected given the disappointing data. The dollar index and bond yields spiked down, gold popped, and US equity futures gained a bit of relief on the lower wage growth numbers. As the morning wore on, however, the dollar reversed its initial losses, gold came under some pressure again, and bond yields began to recover. These market turns are likely due to the perception that the employment numbers, though worse than expected overall, were not likely enough of a disappointment to keep the Fed from raising interest rates two, or possibly even three, more times this year.