Jobs report adds no new information about economy; Fed still on track for 3 hikes in 2018

The US Labor Department released a very ho-hum jobs report this morning, showing the unemployment rate in line with expectations at 4.1%, but with the economy only adding 148,000, below the 190,000 expected. If anything, this report was disappointing, but only slightly. Overall, the report provided no new information on the pace of wage growth or the tightness of the labor market and can largely be discounted.

With the unemployment rate below the Fed’s long-term target of 4.6%, inflation and wage growth are the most crucial considerations for Fed policy. The bit in this particular report that would be most interesting to the Fed, then, is wages. And with wage growth unchanged at 2.5% in the last year, this report added no new information. Month-over-month, the hourly wage figure showed 0.3% growth.

Other pieces to note if one drills down:

  • The Employment to Population ratio for prime-age workers continues to climb. It is now at 79.1%, up from lows around 75% but lower than the 82% level earlier in the millennium
  • The labor force participation rate stayed constant at 62.7%. It started the year at 62.9%.
  • Retail was the big loser in 2017, with a net loss of 67,000 jobs
  • The labor force ticked up by 64,000 and the number of persons unemployed fell.

I continue to expect the Fed to hew to its guidance for three rate hikes this year. Four hikes still appear more likely than two.

P.S. – Politically, some people will note that employment growth in 2017, Donald Trump’s first year as President, was slower than it was in 2016, Barack Obama’s last year. But this slowdown is to be expected as the labor market has already tightened significantly, and we are well into the business cycle.

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