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Krishen Rangasamy, analyst at the National Bank of Canada explains that despite the solid job gains, the Federal Reserve can opt to delay interest rate hikes.  

Key Quotes:

“U.S. employment reports for April were mixed as gains in the establishment survey (non-farm payrolls) contrasted sharply with job losses in the household survey. The latter’s 300K decline in the first four months is the worst start of the year since 2009.”

“The gap between the two surveys on a year-on-year basis is the largest since 2013. So, which of the two surveys is giving a more accurate picture of the U.S. labour market? Investors are likely to focus on the 820K increase in non-farm payrolls so far this year which is more consistent with strong U.S. economic growth seen in Q1. Perhaps even more encouraging is the rebound in temporary employment, a decent leading indicator, after the latter’s Q1 drop. Employment gains at the federal and local levels are also positive signals for government finances and hence infrastructure spending. Despite the drop in the jobless rate to just 3.6%, the lowest since December 1969, the annual wage inflation rate is holding steady at 3.2%, and crucially that’s not feeding into generalized inflation pressures at this point.”

“But market expectations of a rate cut this year are arguably not warranted in light of strong job gains and continuation of the economic expansion.”