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US employment continues to defy predictions of a slowdown

US employment continues to defy predictions of a slowdown  

  • USD: The US economy adds 253k jobs in April, well above consensus for 185k though the beat is less impressive after considering 149k downward revisions to the prior two months jobs figures. On a 3m moving average basis, private payrolls rise a strong 182k and are up 230k on the month. Wage growth is also stronger than expected at 0.48%MoM, well above consensus for 0.3%MoM and the unemployment rate unexpectedly falls from 3.50% to 3.39%. Meanwhile household employment is up 139k, a slowdown from the 577k increase last month. Overall, it seems that the pace of employment gains is slowing with February and March now showing private employment gains of less than 200,000, a key benchmark but jobs added still remain well-above the ~100k per month that would be required to raise the unemployment rate and the 222,000 average for total hiring in the past three months will likely invigorate the Fed’s hawks.  
  • USD: Inflation hawks will also note the largest monthly gain in average hourly earnings since March 2022 (+0.5% and 4.5% year/year). Aggregate hours worked also rebound 0.2% after two consecutive monthly declines. Optimistically, this means real incomes are growing again as inflation has decelerated. Sector-wise, in April, manufacturing and construction employment rebounds after their first monthly decline since 2021.  This seems at odds with weakening output data, but changes in the composition of construction activity suggest an elongated cycle with declines delayed.  Multi-family apartment construction projects will likely deliver record supply in the coming year. This means immediate labor demand for the industry hasn’t faded yet.  In addition, some services areas such as leisure and hospitality continue to see a strong post-COVID rebound and have yet to fully recover.
  • USD: Nevertheless, US GDP has downshifted towards 1% growth in the first quarter and likely beyond. Evidence suggests that “labor hoarding” and lagged recoveries in some industries will likely require a longer period before employment similarly downshifts. Labor markets are outperforming corporate profits, yet a lagged and perhaps lengthy reversal is still likely. Meanwhile, median official Fed forecasts are for the unemployment rate to rise to 4.5% (over one percentage point above current levels). That would imply 0.1-0.2pp increases in the unemployment rate every month for the remainder of the year, making the Fed and markets feel more pressured by “insufficient weakness” in US employment.

Solid wage growth in April’s Canadian jobs data but OIS rates pricing unchanged

  • CAD: Canadian employment rises by 41.4k jobs in April, well above consensus for 20k and the unemployment rate remains unchanged at a low 5.0%. Employment gains though are entirely part time employment driven, which are up by 47.6k jobs while full time employment declines by 6.2k. Meanwhile, average wages of permanent workers remains unchanged at 5.2%YoY, higher than consensus for 4.8%. The most important aspect of the April employment report is consistently strong wage growth, that continues to move sideways around 5%YoY. While this is somewhat higher than other measures of wages, it is consistent with wage growth broadly remaining in the 4-5% range the BoC has frequently cited as too strong to be consistent with 2% inflation.
  • CAD: However, one potentially softer signal in the April employment report is that job gains are entirely in part time employment that may portend an eventual labor market loosening, though it would need more than one month of data to signal this as a lasting trend. Meanwhile, hours worked, a useful proxy for GDP during the month, rise a solid 0.2%MoM, in line with a continued upward trend of output and contrary to the BoC’s expectations for activity to move sideways and the economy to enter “excess supply” in H2’2023. Overall, another strong employment report that is indicative of a consistently tight labor market is not a good signal for the BoC expecting slowing activity to bring the economy into excess supply by the second half of the year. The BoC, including in comments from Governor Macklem last week, has made it clear that it will raise rates again if inflation looks to be persistently high. A still-too-tight labor market in April, the last employment report before the June 7 meeting, suggests the BoC may raise rates by 25bp again in June.


Week Ahead: US April CPI MoM, PPI Final Demand MoM, May Preliminary University of Michigan Consumer Sentiment, Bank of England board meeting, Australian Federal Budget, Bank of Canada Senior Loan Officer Survey, China trade balance, April CPI and aggregate financing.

  • USD: US April CPI MoM – Citi: 0.5%, median: 0.4%, prior: 0.1%; CPI YoY – Citi: 5.1%, median: 5.0%, prior: 5.0%; CPI ex Food, Energy MoM – Citi: 0.4%, median: 0.3%, prior: 0.4%; CPI ex Food, Energy YoY – Citi: 5.6%, median: 5.4%, prior: 5.6% - Citi Research expect a 0.435%MoM increase in core CPI in April, technically rounding to 0.4%. After the start of long-awaited moderation in shelter prices in March, monthly CPI prints will be particularly sensitive to a more uncertain path for shelter prices over the coming months. Shelter prices should continue to slow on average over the coming months, although the M/M path is unlikely to be smooth. Citi Research pencil a 0.62%MoM increase in primary rents and a 0.57% increase in owners’ equivalent rent in April, still stronger increases than in March. Headline CPI should rise 0.5%MoM as energy prices rebound with rising retail gas prices.
  • USD: US April PPI Final Demand MoM – Citi: 0.2%, median: 0.3%, prior: -0.5%; PPI Final Demand YoY – Citi: 2.3%, median: 2.4%, prior: 2.7%; PPI ex Food, Energy MoM – Citi: 0.1%, median: 0.3%, prior: -0.1%; PPI ex Food, Energy YoY – Citi: 3.1%, median: 3.3%, prior: 3.4%; PPI ex Food, Energy, Trade Services MoM – Citi: 0.3%, median: 0.3%, prior: 0.1%; PPI ex Food, Energy, Trade Services YoY – Citi: 3.5%, median: NA, prior: 3.6% - producer price data recently has softened more than consumer price data, showing signs of easing supply issues and lower commodity prices much faster, as PPI will capture prices of various goods and services throughout the boarder economy and not just those faced by consumers. Citi Research expect weakness to continue to in PPI components such as trade services and various transportation services in April, with a modest 0.2%MoM increase in PPI final demand and 0.1%MoM in PPI excluding food and energy.
  • USD: The May (preliminary) University of Michigan Consumer Sentiment – Citi: 62.4, median: 63.0, prior: 63.5; 1Yr Inflation Expectations – Citi: 4.6%, median: NA, prior: 4.6%; 5-10Yr Inflation Expectations – Citi: 2.9%, median: NA, prior: 3.0% - Citi Research expect a modest decline to 62.4 from 63.5 in the University of Michigan Consumer Sentiment Index in the preliminary May report. Weakness should come mainly from the expectations index as the current conditions index could stay around recent levels as large durables inflation stays soft and aggregate labor incomes stay strong. Citi Research expect the 1Yr inflation expectations index to stay elevated at 4.6% with some downside risk though the Fed will focus more on the 5-10Yr inflation expectations that have been stable in the 2.8-3% range.


  • GBP: Bank of England board meeting - The 11 May MPC meeting is unlikely a major market mover, but the risk vs base case is perhaps dovish. The MPC is most likely to deliver a 25bp hike (as fully priced) to a cash rate of 4.5% and keep forward guidance unchanged (with a conditional tightening bias). Voting however is likely to be split once again on a hike vs a pause (7-2), as it has been for the last three meetings (noting that Tenreyro only has two meetings left and could even consider a vote for a cut in May and/or June as a parting gesture). The MPC is still waiting for permission to pause, but incoming data, so far, won’t allow it with the latest strong UK inflation/wages likely sealing 25bp this week. There still has to be a point soon, however, when the MPC reverts to a forward-looking approach that deals with policy lags and necessarily trusts its projections. While there have been upside CPI/wage surprises, the May projections will be the first to assess the impact of credit conditions following recent banking sector events. Net, another set of dovish forecasts seems likely.


  • AUD: Australian 2023 Federal Budget: Citi forecast FY23 Underlying Cash Balance; -$AU5.0bn, Previous -$AU36.9bn; Citi forecast FY24 Underlying Cash Balance; -$AU17.0bn, Previous -$AU44.0bn – the FY23 budget is likely to be the smallest since the start of the COVID pandemic. This may not seem like a long time ago, but the Federal Government’s response to the pandemic meant that the Budget moved from being essentially balanced in FY19 to an underlying cash position to -6.5% of GDP or -$AU134bn in FY21. Quite remarkably, economists are forecasting an underlying cash position of just -$AU5.0bn in FY23. This would represent a $AU31.9bn improvement from the estimated deficit in the October 2022 budget document. It is even possible that the cash position could be balanced or in a small surplus as at 30 June 2023.
  • CAD: Bank of Canada Senior Loan Officer Survey (Q1) – there will likely be more focus than usual on the BoC’s quarterly Senior Loan Officer Survey this week given global banking sector concerns. There are few implications from banking issues in the US on the Canadian banking system. But some further tightening in lending that began in recent quarters could continue due to higher rates. Markets will also focus their attention on details for mortgage lending standards as there have been recent signs of housing activity starting to pick up again with markets expecting cuts from the BoC. This rebound in housing is a bit earlier than the BoC has been expecting and some easing in lending as mortgage rates fall could entail more support for housing.


  • CNH: China Trade Balance (USD $bn) April: Citi Forecast 75.6, Consensus 73.0, Prior 88.2; Exports (%YoY): Citi Forecast 10.0, Consensus 8.5, Prior 14.8; Imports (%YoY): Citi Forecast 0.5, Consensus -0.5, Prior -1.4.
  • CNH: China CPI (%YoY) April: Citi Forecast 0.5, Consensus 0.3, Prior 0.7; PPI (%YoY): Citi Forecast -3.2, Consensus -3.2, Prior -2.5 – China’s headline CPI inflation could stay weak at 0.5%YoY, with the base from last April still elevated. Food disinflation could remain a drag, with pork prices down -5.2%MoM and vegetable prices -9.1%MoM in April. Meanwhile, durable goods’ disinflation could ease with sales recovering, and services reflation could be well underway. For industrial goods, global commodity price weakness could weigh PPI inflation further down to -3.2%YoY.
  • CNH: China Aggregate Financing (CNY bn) April: Citi Forecast 1,800, Consensus 1,945, Prior 5,380 (government bond issuance also softened, with net financing at RMB148bn vs. RMB382bn in March according to data compiled by Wind); New Yuan Loans (CNY bn): Citi Forecast 1,500, Consensus 1,350, Prior 3,890 (bills discount rate trended down in April, likely indicative of marginal easing in credit demand. Recovery of household loans could continue with property sector stabilizing – new home sales in Top-30 cities recorded a 28.4%YoY growth vs. 45.0% in March); Money Supply M1 (%YoY): Citi Forecast 5.6, Consensus 5.1, Prior 5.1; Money Supply M2 (%YoY): Citi Forecast 12.3, Consensus 12.6, Prior 12.7 (M2 growth could start to slow with the high base from VAT credit rebate kicking in. We expect April reading to drop to 12.3%YoY).