Do surprising low payroll gains signify a more sustainable rate of progress?
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Do surprising low payroll gains signify a more sustainable rate of progress?

Last Thursday, U.S. unemployment claims dropped to the lowest point in almost a decade. But on Friday, U.S. payroll gains slowed significantly from previous months. How do we make sense of these potentially conflicting data points? According to some commentators, it may signify a return to a more normal labour market, and a more sustainable pace of job creation.

98,000 new jobs were added to the U.S. economy in March, significantly less than the estimated 180,000 reported on Bloomberg, and a sharp decline from February’s 219,000. Jobless claims, meanwhile, fell to 4.5% from 4.7%, the lowest in almost a decade.

Stephen Stanley, chief economist at Amherst Pierpont Securities, said: “Even if payrolls are slowing down, I’m not sure that means the labour market is weakening. To the extent that it is slowing down or going to slow down, it’s probably more a function of tight supply than weakening demand.”

Despite the possibility that slower jobs growth is a positive for the economy rather than the negative it at first appears, it runs contrary to president Donald Trump’s stated goal of adding 25 million jobs in 10 years. To achieve that, 208,000 jobs will need to be added per month. The average for the first quarter stands at 178,000.

It is unlikely that slowing growth in jobs, at least when paired with a low unemployment claims rate, will affect the trajectory that the Federal Reserve (FED) has set for this year’s interest rate hikes. FED officials have claimed that they see the economy “operating at or near maximum employment,” and expect to raise rates two more times in 2017.

Disclosure

The opinions in this article do not reflect those of Dominion Fund Management Limited, and in the instance of any forward-looking statements, these should not be construed as advice.


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