Today’s jobs report is an example of where bad news can be good news. For the past several months the labor market has continued to overheat in the face of restrictive Federal Reserve policy. This report shows that the job market may finally be softening. This is helpful because lower job growth and lower wage growth lessens inflationary pressure on the economy. This reduces pressure on the Fed to keep interest rates higher for longer.
Is the Labor Market Starting to Soften?
US Job Growth Slowed to 175,000 in April While Unemployment Increased to 3.9%
U.S. job growth slowed significantly in April, to 175,000. The monthly change slowed from 315,000 the previous month and was below the consensus forecast of 240,000.
The labor market has shown surprising strength in the last year, coming in over analysts estimates for the past several months. While no report should carry too much weight, this may be an early sign that the labor market is starting to respond to the Federal Reserve’s restrictive policy actions. But it will take more than one month and one data point to indicate a new trend.
The unemployment increased to 3.9% in April, from 3.8% the previous month. Unemployment still remains very low compared to historical averages. Last year the unemployment rate dropped to a multi-decade low of 3.4%.
The labor force participation rate stayed at 62.7% in April, matching the rate from March. The labor force participation rate is the share of individuals who are employed or actively seeking employment. Despite an upward trend over the past four years, the rate remains below pre-pandemic levels in 2020. This disparity reflects substantial shifts currently occurring within the labor force.
Many older workers exited the labor force in the early stages of the pandemic and never returned to the jobs they left. However, the strong economy has attracted many international migrants to come into the U.S. to fill the worker gap. This dynamic will continue as long as job growth remains strong and the unemployment rate remains low.
Wage growth continues to slow, although it remains above inflation and the long-term trend for wage growth. Average annual earnings increased 3.9% on a year over year basis, slowing from 4.1% the prior month. On a month over month basis, wage growth slowed to 0.2% in April, compared to 0.3% the prior month.
The rate of inflation continues to slow but remains above where it should be. Over the past year, prices have increased by an average of 3.5%. This is much slower than the high point of just above 9% price growth in the summer of 2022, but it remains above the Fed’s target of 2%. This “last mile” of getting inflation re-anchored to the long-term average of around 2% may be difficult to achieve and will remain a primary focus of the Fed over the next year.
Private payrolls increased by 167,000 in April, with goods-producing industries increasing by 14,000 and service-providing industries increasing by 153,000. In addition, government jobs increased by 8,000.
Industries leading the job gains were education and health services (+95,000); trade, transportation, and utilities (+52,000); and construction (+9,000). By contrast, the industries with negative job growth in April were information (-8,000); professional and business services (-4,000); and mining and logging (-3,000).
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