U.S. Jobs report: Slowdown or structural saturation?

Last week’s job report showed headline gains of just 38,000 and Dollar immediately went for a large correction. According to market participants, June hike went off the table. The market pushed back rate hike expectations to November and some feared U.S. economy has hit a roadblock and job market is reflecting that.

First, we need to answer – has the job market been as weak as shown by the headline figure?

Probably not. About 35,000 workers in information sectors were on strike and off the payroll. So with them, payroll number would have been above 70,000. Except for that headline figure, some aspect of its point to underlying strength.

Both Underemployment rate and employment rate declined didn’t deteriorate. As a matter of fact, the unemployment rate declined to 4.7%, while the under-employment remained steady at 9.7%. More importantly, wage growth has remained steady at 2.5%.

If Labour market is not losing the steam, what could be the problem?

The problem could be structural. 0.2% drop in labour force participation, which has been the key reason behind 0.3% drop in unemployment rate support this theory, along with more than 5 million job openings (JOLTS survey). U.S. economy may be hitting maximum employment possible at the current skill level.

As of now, both are possible, weakness or structural saturations, which means, we don’t have sufficient evidence to pin point any one but upcoming job numbers should fill in the gaps.