Labor report shows drop in employment

April's employment report contained an even bigger surprise than the jump in U.S. payrolls: Spare capacity in the labor market is quickly disappearing, signaling that lackluster wage growth should get a spark in coming months.

The unemployment rate unexpectedly dropped to 4.4 percent, the lowest since May 2007, Labor Department data showed Friday. The underemployment rate, which includes discouraged workers and those who are working part-time but would prefer full-time positions, declined to the lowest since November 2007, one month before the last recession started.

Such figures help explain why economists were looking beyond the subdued 2.5 percent year-over-year wage gain, the smallest since August.

Removed from the weather-related distortions of the previous three months, the April figures indicate solid trends in employment, while measures of those left behind in the recovery - favored by Federal Reserve Chairwoman Janet Yellen and President Donald Trump - are at or near pre-recession levels.

While the tighter labor market failed to translate to a breakout in wages in April, analysts are penciling in bigger paychecks in the months to come.

'Labor-market slack is getting absorbed pretty quickly,” said Stephen Stanley, chief economist at Amherst Pierpont Securities. 'As long as the labor market is tightening as it has been recently, it's a very safe bet that we're going to see wages accelerate.”