US labor productivity likely declined in Q1 2016

In the US, March non-farm payrolls increased 215k, as compared with consensus expectation of 205k. Meanwhile, private sector hiring also grew above expectations at 195k. The jobless rate of the US rose to 5%, while consumer survey employment increased 246k in March. However, it was lower than the labor force growth of 396k. Meanwhile, US labor force participation rate increased to 63% of working age adults. This is the highest in two years.

Sector wise, employment in goods-producing sector dropped 4k, as employment in manufacturing and mining sectors dropped by 29k and 12k respectively. However, the declines were offset by a rise of employment in construction sector by 37k. Employment at private services-producing sector grew 199k, whereas in government it increased by 20k, which was mainly at the local level.

Average hourly and weekly earnings grew 0.3% m/m, whereas on an annual basis, it grew to 2.3% from February’s 2.2%. Meanwhile, February’s data was revised upwards to 245k from 242k, whereas January’s was downwardly revised to 168k from 172k.

The growth in labor force participation rate has been outstanding in the past six months. It has been the strongest in more than two decades, implying that job market is ultimately “pulling discouraged workers off the sidelines”, according to TD Economics. The rising labor force participation might not stall the US Fed from hiking rates; however, it will make sure that the rate hike is very slow, added TD Economics.

On inflation front, wage growth in the US accelerated moderately in March. Even if wage growth might not be much strong, structural factors are at play, notes TD Economics. However, earnings are weighed on by relatively low rate of labor productivity.

“Given the tracking for real GDP growth around 1.0% and aggregate hours growth of 1.8%, productivity declined in the first quarter and is tracking close to zero over the past year”, says TD Economics.