Modest Job Creation is a Positive

- Preliminary 1Q Non-farm Productivity rose 2.6% versus estimates of a 1.8% increase and a 2.1% gain in 4Q.
- Preliminary 1Q Unit Labor Costs rose 2.2% versus estimates of a 2.0% gain and a 1.7% increase in 4Q.
- Initial Jobless Claims for last week rose to 333K versus estimates of 323K and 322K the prior week.
- Continuing Claims rose to 2589K versus estimates of 2595K and 2551K prior.

Bottom Line: While unit labor costs, which account for two-thirds of inflation, exceeded estimates slightly, investors are focusing more on the much better-than-expected productivity number. As long as productivity remains elevated, it is unlikely we will see unit labor costs rise substantially. As a result, hiring will remain modest by historic standards and inflation will remain well in check.

The four-week moving average of jobless claims fell to 321,500. This is the lowest since April 7, 2001. Moreover, the Challenger, Gray & Christmas report released earlier in the week showed job cuts are at the lowest level in almost five years and 20% less than in April of last year. I continue to believe the US economy can create at least 100,000 to 125,000 jobs on average through year-end which will keep the unemployment rate low by historic standards.