US employment growth to rebound again; jobless rate likely to reach 4.4 pct by 2017-end

The US jobs report data for the month of May and April were not quite strong. Employment in the country grew just 38,000, the lowest rise since 2010. The sluggish rise was due to a Verizon strike that dragged the figure down by 35,000. 

The subdued reports might also be due to sluggish economic growth in the fourth quarter of 2015 and the first quarter of 2016 where growth in employment was strong despite subdued GDP growth. Pure volatility cannot be ruled out as a reason either. Overall, this does not signify a sign of a considerable slowdown in the US economy, given other solid economic data, said Danske Bank in a research report.

Employment growth is likely to rebound again; however, it is expected to be below the levels seen in 2014 and 2015 as the US economy is quite close to full employment.

In the coming years, employment in the US is likely to grow approximately 175,000 per month, signifying an improvement in productivity growth to guarantee growth of about 2 percent - 2.5 percent, added Danske Bank. Growth in employment of about 175,000 per month is sufficient to ensure that the jobless rate would continue to fall as a huge rebound in participation rates is unlikely.

“We expect the unemployment rate to reach 4.4 percent by year-end next year,” noted Danske Bank.

Labor market tightening has already resulted in higher wage inflation; however, it remains quite moderate. Additional tightening is likely in the labor market, along with rising wage pressure that would aid in accelerating core inflation.

PCE core inflation is likely to accelerate gradually to 1.9 percent year-on-year in the forecast horizon. Also, headline inflation is likely to accelerate as base effects from collapse in oil price start to decline and as food prices are expected to increase at a more rapid pace, according to Danske Bank.