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The April employment report showed that the US economy created 263K jobs, above expectations. According to analysts at Wells Fargo, the data shows the labor market remains strong. They see that wage growth should pick up again with the labor market still tightening, even as the 50-year low in the unemployment rate exaggerates the improvement. They explain that the unemployment rate dropped to the lowest in 50 years but not for the right reasons.  

Key Quotes:  

“Average hourly earnings rose 0.2% last month, in line with our below consensus call. April’s gain was likely held down by the timing of the survey week as well as more working days than average last April. Therefore, we expect the upward trend in average hourly earnings to resume over the next couple of months, but not to pose much of a threat to inflation.”

“The unemployment rate fell to 3.6%, the lowest rate since 1969. The decline was sharper than expected and stemmed entirely from a drop in labor force participation. Labor force participation had been improving at a faster rate over the past year, but as we highlighted in a report earlier this week, the pace of gains looked unsustainable.”

“Other gauges from the household survey also point to a bit more slack than indicated by the official unemployment rate. The broadest measure of unemployment, which includes workers marginally attached to the labor force as well as parttime employees who want full time work, was unchanged in April. At 7.3%, this measure of unemployment suggests the labor market is tighter than in the mid-2000s, but not quite as strong relative to the late 1990s.”