KEY DATA: Payrolls: +160,000; Private: 171,000; Unemployment Rate: 5% (unchanged); Wages: +0.3%

IN A NUTSHELL: “Job growth is not too hot, not too cold but not just right.”

WHAT IT MEANS: The economy has grown by just over a 1% annualized growth rate during the past six months, but job gains during that time frame were strong – probably stronger than would be expected given the economy. What has worried economists is that firms would not be able to sustain all that hiring, so the April increase in payrolls was a disappointment. But is it a warning sign? Maybe not. The last time job gains were this modest was last July, but that report was followed by six months of solid increases. One number doesn’t mean much. Second, it’s always about the details and those were mixed, not soft. On the positive side, manufacturing stopped its steep slide and actually added a few jobs. Health care was solid as was leisure and hospitality, while there were plenty of professional services positions were added. On the negative side was the government. Not surprisingly, the postal service continues to shrink and strangely, there were layoffs in local education. Why April? Got me. The energy sector is still in free-fall while retailers cut, rather than added employees. The retail decline happens periodically, but it is something to watch.

But the really good news for workers, and the issue for the Fed, was that wages rose sharply and the gains are accelerating. In addition, hours worked were up and that implies that income growth in April was strong. One of the reasons wage gains are picking up is that the unemployment rate is near full employment. Yes, it remained at 5%, and yes, the labor force shrunk, but it is up 1.2% over the year. That is well above a demographically supportable, sustainable rise. What appears to be happening is that people are indeed coming back into the workforce, as would be expected when the labor market tightens. A one-month decline in the labor force or the participation rate means nothing as both are rising over the year.

MARKETS AND FED POLICY IMPLICATIONS: This was one of those reports where the headline number and the details were largely in synch. There were good parts and weak parts but it was mezza mezza overall. The level of job gains, while mediocre, is still large enough to stabilize if not keep the unemployment rate slowly falling. There are clear signs the tight labor market is causing firms to finally pay up for workers, and that really is the story here. Workers are starting to quit again and businesses continue to complain about their inability to find suitable workers. That raises the question whether the soft job gains in April was the result of a lack of demand or a lack of supply. If you cannot the workers you need, you cannot hire more workers. That translates into higher wages in order to retain workers. Chair Yellen has made the argument that soft wage gains is an indicator of a labor market that has yet to reach full employment. This report doesn’t force her to say that full employment is here, but it brings us much closer to that point. Even if the May report duplicates the April wage increase, I don’t think a rate hike at the June 14-15 meeting is likely at all. But unlike others, I believe the July 26-27 one is a possibility. If both the May and June reports contain strong wage gains, Chair Yellen will have problems supporting her stand. Also, as I have argued before, she wants to show that all meetings, not just ones with press conferences, are options for rate hikes. The July meeting would be a suitable one to prove her point. As for the markets, a report that is less than expected on job growth but more than expected on wage growth is a real conundrum. Maybe the less than stellar earnings numbers will remind traders that if demand is not good, earnings will not grow strongly. Instead, they should hope for a good economy, even if it means rising rates, rather than a weaker one that implies no rate hikes.