With a disappointing first-quarter GDP read still top of mind, Wall Street will turn its focus on Friday to the April jobs report with a keen eye out for continued wage growth that could help quell fears about sluggish consumer spending – which accounts for a majority of economic growth.
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After a weaker-than-expected March jobs report, which showed job cuts in the retail sector weighing heavily on the overall pace of hiring, Wall Street expects the U.S. economy to have added 185,000 net new jobs last month alongside a slightly higher unemployment rate of 4.6%, up 0.1% from March. Average hourly earnings for all workers are forecast to rise 0.3%, a slightly faster clip than the 0.2% growth the month prior.
Economic growth figures released by the Commerce Department last Friday showed the economy grew at a sluggish 0.7% annualized rate in the first three months of the year, far below the 2.1% rate notched in the final quarter of 2016 and its slowest pace in three years. A paltry 0.3% rise in consumer spending, which represents about 71% of GDP, contributed to the overall slowdown as shoppers spent less on long-lasting goods, clothing and energy.
Signs of further wage inflation in April would help reassure investors that stagnant spending may reverse in the coming months, since that would mean consumers have more cash in their pockets, said Jim Smigiel, chief investment officer at SEI.
“Pundits have pointed to the late Easter/Passover holiday season and delays in tax refunds to explain the spending malaise, which should reverse course into the second quarter … the continuation of this healthy trend in wages will be an important factor in confirming to investors that spending will see a rebound,” he said.
Stoking anxiety about a more serious pullback in economic growth has been a divergence in the so-called hard data figures released by the government, and results from sentiment surveys. Americans continue to say they are upbeat about their current and future economic prospects, but haven’t been as inclined to put their money where their mouth is.
Wall Street got its latest mixed bag of economic data on Thursday which showed weekly jobless claims dropped to a 17-year low, evidence of a labor market that is at or near full employment. However, as labor costs rose, worker productivity fell to its weakest level in a year – adding to worries about the consequences of slow long-term productivity growth.
Should the April employment figures come in on the soft side, it could help fuel ongoing debate about the contrast between hard data and sentiment surveys, said Aberdeen Asset Management investment manager Luke Bartholomew.
“There’s some evidence from other data that [wage growth] is picking up, so it will be important to see if this is reflected in the report. If it is, the chances of a June [rate] hike will increase,” he said.
Indeed, the Federal Reserve on Wednesday – following its two-day May policy meeting – emphasized it will continue to monitor incoming economic data before moving forward on its vow to raise rates twice more before the end of the year. What’s more, members of the Federal Open Market Committee said they viewed the first-quarter economic slowdown as temporary and expect to see a more moderate pace of growth alongside continued tightening in the labor market and firming inflation.