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The latest U.S. NFP release showed that the economy added 288,000 jobs in April, much higher than the estimated 216,000 increase. On top of that, the March NFP figure was revised higher from the initially reported 192,000 figure to 203,000. Overall, the jobless rate showed a massive improvement from 6.7% to 6.3%, but is the U.S. jobs situation as rosy as the headline figures are suggesting?

The Good

A closer look at the components of the NFP report reveals that the construction sector added 32,000 jobs in April, its fastest pace of increase in three months. Hiring in the retail sector increased by 34,500, which is its highest gain so far this year. These contributed to the biggest upside surprise for the NFP report since February 2012 and pushed the unemployment rate to its lowest level since September 2008.

Recall that total employment in the U.S. already surpassed its pre-recession levels in March this year, and the latest jump in hiring suggests that the jobs recovery is getting traction. Several economic analysts remarked that this supports the Fed’s claim that a few green shoots can be seen in the U.S. labor market.

The Bad

Now for the not-so-good news… Guess what caused a huge part of the decline in the U.S. jobless rate? If you answered “another drop in the participation rate” or “more people exiting the labor force” then you get brownie points for reading my previous NFP reviews and staying up to speed with U.S. labor market developments!

Roughly 800,000 Americans left the labor force and gave up looking for full-time work last month, bringing the participation rate down from 63.2% in March to 62.8% in April. That’s its lowest level since March 1978!

Bear in mind that Fed Chairperson Yellen has emphasized that the FOMC is looking at a wide range of data when it comes to assessing employment conditions, and I wouldn’t be surprised if the participation rate is included in the mix. After all, the Fed needs to figure out how long-term employment could fare before making monetary policy adjustments.

Another data point that the Fed could be watching closely is wage growth. Unfortunately, average hourly earnings stagnated at $24.31 in April. On an annualized basis, this marks a mere 1.9% gain, which is its slowest pace of increase this year. If wage pressures remain non-existent in the coming months, more Americans would be likely to keep their hands in their pockets instead of spending their money. This could lead to weaker retail sales and lower economic growth, which might eventually hurt hiring.

Do you think U.S. employment is really picking up or is it too early to call this a recovery? Share your thoughts in our comment box or cast your votes in the poll below!