Banks are in turmoil, economic uncertainty is growing, and the Federal Reserve has tightened monetary policy at the most aggressive pace in decades. And still, the U.S. labor market continues to grow — for now, at least.
Employers added 253,000 jobs in April, the Labor Department reported on Friday, marking a surprise jump up from March’s revised gain of 165,000. The unemployment rate ticked down to 3.4%, matching its lowest level in more than a half-century.
Strength was evident across the board: The share of Americans considered to be in their prime working years who are either working or looking for a job climbed to its highest level since early 2008, just before the financial crisis hit. The unemployment rate among Black workers hit its lowest level ever. And a broad range of industries, from healthcare and business services to leisure and hospitality, saw growth over the month.
That remarkable strength in the face of significant economic and financial headwinds underscores just how resilient the current labor market is, even as the broader economy slows. As the Federal Reserve works to rein in inflation, the labor market’s confounding durability has given central-bank officials space so far to keep interest rates in restrictive territory without having to worry about widespread layoffs or acute economic pain.
“For those fearing the downstream consequences of higher interest rates, today’s jobs data was a Mayday call: Interest rate relief is not on the horizon,” wrote Aaron Terrazas, chief economist with Glassdoor.
While the April report was an overwhelmingly positive one, there were some clues buried within it that suggested a labor market slowdown may still be on the way.
Perhaps most significantly, the report included notable downward revisions for the number of jobs added in both February and March, suggesting that the labor market had been cooling more significantly than was initially understood. Headline figures for those two months were revised down by a collective 149,000 jobs, bringing the three-month average of job growth for the period ending in April to 222,000 jobs monthly.
While still strong, that growth rate marks a significant step down from where the three-month average pace stood before April’s data were released, at 345,000 jobs added per month. The cooling may be far more gradual than anyone expected, but the downward trend is evident.
Elsewhere, the report showed a decline in the temporary-help services sector, which lost 23,000 jobs over the month. The category is sometimes considered a leading indicator for the labor market, because employers tend to shed temporary employees before moving on to broader job cuts.
Beyond the data released Friday, other recent reports have shown unemployment claims continuing to rise and job openings, a proxy for labor demand, falling significantly.
The upshot is that the labor market, while still strong, also continues to show signs of weakness. And so far, it is moving in a direction the Federal Reserve has long wanted to see: cooling slightly without collapsing.
The question now is how long the labor market will be able to continue on that slow downward trend, especially if the central bank views the persistent strength in job growth as a reason to tighten interest rates even further or at least keep them at a restrictive level.
April’s data on wage growth alone could nudge the Fed toward continued tightening in June: Average hourly earnings climbed 0.5% over the month, up from March’s 0.3% pace, and accelerated to a 4.4% annual rate, up from 4.2%. That increase suggests that any relief in inflation—particularly in the key services categories where price growth has been highest—will remain elusive in the near-term, although some economists caution that wage data can be noisy month to month.
“The takeaway is simple for the Fed: Unemployment is extremely low and wage growth is strong, so they will keep the foot on the brake for the time being,” says Bill Adams, chief economist with Comerica Bank.
Another jobs report and plenty of inflation data will be released before the Fed’s next meeting. But as of late Friday morning, investors were overwhelmingly pricing in the expectation that officials would hold rates steady in June, the CME FedWatch tool showed.
Eventually, however, economists expect the central bank’s monetary-policy tightening efforts to take hold fully. “With each passing month, the tailwinds from efforts to re-staff post-lockdowns are getting weaker, while the hiring headwinds from tighter monetary policy are getting stronger,”
Wells Fargo
economists Sarah House and Michael Pugliese wrote in a client note titled “The Little Jobs Market That Could.”
“The jobs market remains on solid ground,” they added, “but cracks are emerging.”
Write to Megan Cassella at [email protected]
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