Labor market still in full stride, just misses the April trifecta

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      By Andrew Szczurowski, CFAPortfolio Manager, Global Income Group, Eaton Vance Management

      Boston - In honor of the 145th Kentucky Derby this weekend, I figured I would work some horse racing terminology into my take on today's April payroll report.

      At the post, the expectation was for 190k jobs created in April, a fairly high bar for an economy which had positive labor growth for 102 straight months. It turns out the U.S. economy is a mudder, and thrived in the April showers, adding an impressive 263k jobs and easily topping expectations.

      Getting to the details of the report:

      In addition to the strong headline number, there was also a drop in the unemployment rate from 3.8% to 3.6%. To find an unemployment rate lower that 3.6%, you have to go all the way back to 1969, just after Neil Armstrong landed on the moon and Majestic Prince won the Kentucky Derby. Unfortunately, the decline in the unemployment rate was driven by a falling participation rate in April after it rose earlier this year.

      The labor market would've hit the trifecta if wage growth hadn't come in just below expectations. In April, hourly earnings rose 0.2% month over month, and 3.2% year over year, just below the expectations of 3.3%.

      The bond market seems to have shifted its focus more on wages than the headline jobs numbers. While today's wage number was slightly below expectations, the trend over the past year remains higher, and there are still more job openings than unemployed workers, which should continue to push wages higher.

      Looking at the sector breakdown:

      Win: The Administrative and Support Services sector added 53.1k jobs in April.

      Place: The Health Care sector added 52.6k jobs. The heavy favorite continues to impress, but was second by a nose for the sector with the highest job creation last month.

      Show: The Construction sector added 33k jobs in April and continues to add jobs at an impressive rate.

      DNF: General Merchandise Stores lost 8.5k jobs, as continued mall/store closures will continue to weigh on the sector.

      Bottom line: The continued strength in the labor market may put out to pasture the thought that a rate cut is coming. Those thinking an "insurance" rate cut is necessary should keep in mind the stock market is near all-time highs, the unemployment rate is at a 50-year low and credit spreads have reversed almost all of their Q4 2018 widening. The easing in financial conditions and tightness of the labor market doesn't exactly scream an economy in need of more stimulus. The bond bulls will point to the fact that the Federal Reserve is missing on its 2% inflation mandate, because core personal consumption expenditures (PCE) is at 1.6%, meanwhile core consumer price index (CPI) has been at or above 2% for 13 straight months. Measuring inflation is not an exact science, so we shouldn't get too carried away about one metric showing a small miss, when there are a number of others showing inflation is in fact at 2% or higher.