Economic Update: Jobs rebound, but wages still disappoint

The U.S. jobs market rebounded from March weakness, although the gain was not sufficient to dispel fears in the market that the U.S. economy could be slowing.

Non-farm payrolls added 223,000 jobs in April, and March payrolls were revised lower by 39,000, to a gain of just 85,000 jobs. The unemployment rate fell to 5.4% and the rate of labor force participation improved. Also positive was the decline in the U-6 underemployment rate to 10.8%. The underemployment rate measures not only those that are unemployed, but also includes those people who are working part-time and would prefer to be working full-time.

Wage growth, however, was a slight disappointment, with average hourly earnings adding just 0.1% for the month, indicating the labor market may not yet be reaching full employment.

We generally believe the jobs market and economic growth should improve over the course of 2015 as one-time factors (winter weather, the West Coast ports strike, the significant decline in oil industry capital spending) recede and the strength of consumer spending and the accumulated consumer benefits from lower energy prices lift economic activity.

In contrast, first quarter economic growth may slow from the anemic 0.2% growth rate first estimated. The U.S. Balance of Trade in March deteriorated to negative $51 billion, the worst level since 2008. The deficient trade balance is a negative to economic growth. However, we anticipate this is a temporary issue arising from the settlement of the West Coast ports strike, which is likely to create some distortions to monthly economic data, such as we believe is seen in the trade data.

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Robert L. Haworth, CFA, is a senior investment strategist and Darrell Behnke is the Madison market leader for the Private Client Reserve of U.S. Bank.

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