We have made the case over the past few months that resilience rather than recession is a more apt description of the American economy.
Despite the twin shocks of elevated inflation and higher interest rates, the American labor market is simply unstoppable.
The net change in employment in the April jobs report of 253,000 reported by the Labor Department on Friday reflects that resilience. In addition, the decline in the unemployment rate to 3.4% reflects a robust underlying demand for labor, which is also illustrated by the 0.5% increase in average hourly earnings in April. On a year-ago basis, those earnings increased by 4.4%.
Despite the twin shocks of elevated inflation and higher interest rates, the American labor market is simply unstoppable.
Think of how sports commentators used to describe Michael Jordan: One can’t stop him, one can only hope to contain him. So it is right now with the American labor market.
While the three-month average gain of 222,000 jobs is slowing, in part because of the downward revision of 149,000 in total employment growth over the previous two months, once one looks beneath the top-line number all one notices are strong to robust gains.
Policy implications
Strong demand for workers and a 3.4% unemployment rate provide no relief for those at the Federal Reserve who would like to pause their rate hike campaign at their June policy meeting.
The wage gains and above-trend increases in hiring across the private sector point to the risks of pulling back on efforts to restore price stability.
While the three-month average annualized pace of wage growth has slowed to 3.8%, the Employment Cost Index, which the Fed leans on when assessing wage inflation, increased by 5% in the first quarter. This gain, combined with the strong April jobs data, bolsters the case among hawks at the Fed for one or two more rate hikes.
Investors and policymakers should anticipate an intense, and public, debate among central bankers over whether the policy rate is sufficiently restrictive heading into the June meeting.
The data
Hiring in high-wage categories remained strong in April. The goods-producing sectors added 33,000 to total employment in April, the construction sector added 15,000 and manufacturing employment increased by 11,000. Professional business services increased by 43,000 in contrast with its six-month average of 25,000, trade and transport increased by 17,000 and financial sector employment increased by 23,000. Private education and healthcare employment jumped by 77,000
Retail trade increased by 8,000, information by 1,000, leisure and hospitality by 31,000 and government hiring by 23,000.
Total private hours worked stayed at 34.4 hours, manufacturing hours eased to 40.2 and average overtime worked increased by 2.9 hours. All of this augurs well for the spending outlook ahead of the traditional increase that occurs around the Easter holiday.
The labor force participation rate remained unchanged at 62.6%, as did the employment ratio, which stood at 40.4%. The civilian labor force declined by 43,000 to 166,688 million.
The number of people who were jobless less than five weeks decreased by 406,000 to 1.9 million in April. The number of long-term unemployed (those jobless for 27 weeks or more) changed little over the month at 1.2 million and accounted for 20.6% of the total unemployed.
Among the major worker groups, the unemployment rates for adult men (3.3%), adult women (3.1%), teenagers (9.2%), whites (3.1%), Blacks (4.7%), Asians (2.8%) and Hispanics (4.4%) showed little or no change in April.
The number of people employed part time for economic reasons was little changed in April at 3.9 million. These workers, who would have preferred full-time employment, were working part time because their hours had been reduced or they were unable to find full-time jobs.
The takeaway
The American labor market remains red hot and meets any definition of full employment. A historically tight labor market and challenges in finding workers will support elevated wage growth, albeit at a modestly slower pace compared to the past two years. While hiring is slowing, it is not doing so at a pace that guarantees the Federal Reserve will pause in its efforts to restore price stability at its June meeting.
