What industry experts are saying about the jobs, wages data

Despite falling short of expectations there are some positives

By Steve Randall

07 May 2018

Employers added 164,000 jobs in April, fewer than expected following the recent strong performance.

The US Department of Labor’s figures are weaker than the roughly 190,000 jobs added each month for the past year (and expected by economists for April) and around 208,000 in each of the last three months.

But there are some positives including a reduction in the unemployment rate to 3.9%, the lowest rate since 2000.

Wages were up 2.6% year-over-year, equating to to an annual increase of approximately $1,300.

“The outlook for rates is heavily dependent on expectations for inflation which in term are influenced by wages. This report suggests that mortgages are unlikely to move much higher in the near-term,” said LendingTree chief economist Tendayi Kapfidze.

Wages should be higher based on usual calculation

The generally-accepted correlation between lower unemployment and higher wages appears not to be in play currently.

Mark Fleming, chief economist at First American says that economists’ usual calculation using the Philips curve, would mean wage growth of 4%, rather than the 2.6% seen last month.

He says that, using a calculation based on the ‘prime age’ participation rate in the labor force (25-54 years) wage growth would expect to be 2.56%, more in line with the actual gain.

“As economic conditions remain strong and the labor force continues to tighten, it’s reasonable to expect wages to rise faster, which translates to higher household income and house-buying power,” said Mark Fleming, chief economist at First American.

He added that based on April’s reported average hourly wages and FirstAm’s estimate of average annual income; along with the average 30-year, fixed-rate mortgage rate in April; First Am estimates that the typical first-time home buyer with a 5% down payment has the house-buying power to afford a $358,840 home. That’s an increase of more than $100,000 since the end of the last recession.

More home builders joined the labor force in April

The data also reveals that the construction industry added more workers in April; a shortage of builders is one of the issues constraining supply.

Residential construction, including residential building and specialty trade contractors, grew by 7,500 jobs in April and added 125,500 jobs over the past 12 months, a 4.7% increase. according to an analysis of new government data by the Associated General Contractors of America.

There remains a lack of skilled workers though.

“Many firms are boosting pay and taking other steps to compete for a relatively small pool of available, qualified workers to hire,” said Stephen E. Sandherr, the association’s chief executive officer. “While these steps appear to be luring more construction workers back to the job market, firms report they would hire even more workers if they could find enough qualified candidates.”