Lowest US Unemployment Rate Since September 2008.

After weak GDP reading for the first quarter released on Wednesday, Friday’s report from the labor market showed that weather-related distortions are thing of the past and the US economy gained steam at the beginning of the second quarter.

Total nonfarm payroll employment rose by 288k and the unemployment rate fell to 6.3 percent from 6.7 percent in March. The data were much better than expected – the consensus among analysts polled by Bloomberg called for an increase in nonfarm payrolls by 218k and a fall in unemployment rate to 6.6 percent. Prior months saw positive revisions, with March up by 11k and February up by 25k.

The number of unemployed fell by 733k mom and the labor force declined by 806k. Thus, the decline in the unemployment rate was mainly the result of huge drop in labor participation rate, which was at the lowest level since December 2013. Some of the 1.35 mn people who lost their longer-term unemployment benefits at the end of last December could have dropped out the labor force in April. The employment-population ratio showed no change over the month.

Labor Department’s announced that private sector added 273k jobs. ADP employment report showed on Wednesday that private businesses created 220k jobs. Today’s figures were much better than suggested by Wednesday’s ADP report, while in March the ADP reading was close to the release of the Bureau of Labor Statistics. Goods-producing jobs rose by 53k, mainly due to good data from construction sector. It is worth noting that construction has added 189k jobs over the past year, with almost three-fourths of the gain occurring in the past six months. The employment data are confirmation of recent good housing numbers. Despite the strong payrolls numbers, there is still no wage inflation. It is typical for the early phase of economic recovery.
US Treasury yields rose reflecting the view that the Fed is likely to continue winding down its stimulus. In the FX market the USD extended gains against both the JPY and the EUR.

The data are in line with the scenario of economy coming back on track indicated by the Fed in its recent statement. We expect that GDP growth in the second quarter this year will be even slightly above 3 percent. The Fed will continue to slow their assets purchases but it is too early to force the Fed to raise interest rates earlier than in the second quarter next year. US short term interest rate futures showed traders pricing in a first hike by the Fed in June 2015, while before the report July next year was the most likely time to start raising rates. In our opinion the first hike is possible in April.

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Growth Aces