U.S. Unemployment Falls to Seven Year Low

US unemployment has fallen to its lowest since 2008 after the economy added 223,000 jobs in April taking the unemployment rate down to 5.4%. 

The jobless rate fell from 5.5% to 5.4% the lowest since May 2008 – before the financial crisis struck – in a signal that companies are confident about the strength of the US economy.

The Labor Department said 223,000 people joined the workforce in April, slightly lower than expectations of 225,000 but much higher than the 85,000 job gain in March – which was the smallest increase since June 2012. However, average hourly wages only grew by only 3% in April, taking year-on-year gains to 2.2%.

The drop in the unemployment rate takes it close to the 5.0% that many Federal Reserve officials consider to be consistent with full employment, and raises the prospect that the Fed may increase interest rates later this year. The US central bank has kept interest rates near zero since December 2008.

Fed officials, who in March dropped a promise to be “patient” about raising rates, meet next to consider raising rates on June 16-17 but most experts expect rates to be held until later in the the year.

“The additional hiring helped push the unemployment rate down to a seven-year low of 5.4%, edging closer to the 5.0-5.2% range which is widely seen as indicative of full employment,” said Chris Williamson, chief economist at Markit.

“Weak wage growth remained the fly in the ointment of the labour market report, albeit with signs that pay pressures are gradually picking up, with average hourly earnings up 2.2% on a year ago. Low inflation is also likely to keep wage reviews down in coming months, suggesting there is little scope for any imminent marked upturn in pay growth. Low pay pressures should in turn help keep inflation down, meaning the Fed should be able to follow a steady and predictable course of small gradual hikes in interest rates.”

Rob Carnell, chief international economist at ING, said the jobs figures were good but wage increases were disappointing which makes the chances of June interest rate hike very unlikely.

“In the end, not the strong labour market release that could have put a June rate hike back on the table. And even with a really good payrolls figure for May, the June rate hike option now looks dead and buried.”

Economists at Capital Economics, said the report was “better, but not great” and “any lingering possibility of a June rate hike from the Fed is now off the table”.

“We may see a further acceleration in employment growth going into the summer, but this isn’t the sort of unequivocal rebound that would give the Fed the confidence to begin tightening monetary policy before independence day,” Capital Economics’s chief US economist Paul Ashworth said.

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