U.S. job growth slowed more than expected in April and the increase in annual wages fell below 4.0% for the first time in nearly three years, but it is probably too early to expect that the Federal Reserve will start cutting interest rates before September as the labor market remains fairly tight.
The Labor Department’s closely watched employment report on Friday also showed the unemployment rate rising to 3.9% from 3.8% in March amid increasing labor supply. Nonetheless, the jobless rate remained below 4% for the 27th straight month. Data this week showed job openings declining in March.
Signs of labor market cooling raised optimism that the U.S. central bank could after all engineer a “soft-landing” for the economy and doused chatter of stagflation, which had been fanned by news of a sharp moderation in economic growth and a surge in inflation in the first quarter. Financial markets boosted the odds of a September rate cut and saw the Fed reducing borrowing costs twice this year instead of only once before the data.
“A cooler pace of hiring to a more sustainable pace should be interpreted as beneficial with respect to the inflation outlook going forward and remove any lingering concerns of a wage price spiral and put to bed loose and undisciplined talk from the corners of the trading community about stagflation,” said Joe Brusuelas, chief economist at RSM.
Nonfarm payrolls increased by 175,000 jobs last month, the fewest in six months, the Labor Department’s Bureau of Labor Statistics said. Revisions showed 22,000 fewer jobs created in February and March than previously reported. Economists polled by Reuters had forecast payrolls advancing by 243,000. Estimates ranged from 150,000 to 280,000. April’s employment gains were below the 242,000 monthly average for the past year.
Job growth last month was diverse. The healthcare sector added 56,000 positions, spread across ambulatory healthcare services, hospitals, nursing and residential care facilities. It continued to lead employment gains as companies seek to boost staffing levels after losing workers during the pandemic.
Social assistance payrolls increased by 31,000 jobs. Employment in the transportation and warehousing industry rose by 22,000 jobs, driven by couriers and messengers as well as hiring at warehousing and storage facilities.
Retailers hired 20,100 more workers. There were modest increases in construction and government as well as leisure and hospitality payrolls, which had been among the major drivers of employment in the past months. Moderate job growth was also reported in manufacturing.
There were minor job losses in professional and business services, reflecting a continued decline in temporary help staffing. This labor market segment, normally viewed as a harbinger for future hiring, has dropped in 24 of the last 25 months. The information industry also posted small job losses as did mining and logging.
The share of industries reporting job growth edged up to 60.4% from 59.6% in March.
Financial markets raised their bets of a September rate cut to about 78% from 63% before the data. The Fed on Wednesday left its benchmark overnight interest rate unchanged in the current 5.25%-5.50% range, where it has been since July. Since March 2022 the Fed has raised its policy rate by 525 basis points.
“We’re sticking with our call for a first ease in July,” said Michael Feroli, chief U.S. economist at JPMorgan. “The market is not there, but we believe that if the next two job reports show continued cooling in labor market activity, then the Fed will be comfortable taking back some of its policy restraint.”
Stocks on Wall Street were trading higher. The dollar fell against a basket of currencies. U.S. Treasury prices rose, pushing yields to multi-week lows.
Average hourly earnings rose 0.2% after climbing 0.3% in March. Wages increased 3.9% in the 12 months through April. That was the smallest gain in almost three years and first reading below 4.0% since June 2021. It followed a 4.1% rise in March. Slower wage growth is consistent with fewer people job-hopping in search of better compensation and working conditions.
Wage growth in a 3.0%-3.5% range is seen as consistent with the Fed’s 2% inflation target. Economists also believed a calendar quirk had biased wages lower.
“It’s also possible that the low April print marks the return of a pre-Covid calendar quirk, in which wage gains are under-reported in months when the 15th - payday for people paid semi-monthly - falls on the Monday or Tuesday after the survey week,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “Either way, wage gains tend to track the quits rate, which is below its pre-Covid level and still falling.”
The average workweek fell to 34.3 hours from 34.4 hours in March. Details of the household survey from which the unemployment rate is derived showed labor supply continuing to increase, largely driven by a surge in immigration last year.
About 87,000 people entered the labor force in April, but there were not enough jobs for many, with household employment rising by only 25,000, accounting for the uptick in the jobless rate. Economists attributed the divergence in employment to the household survey’s difficulties measuring the recent immigrants.
Goldman Sachs estimated the underlying pace of job growth based on the payroll and household surveys at 189,000, but added “we estimate that counting immigration fully would boost this by roughly 20,000.” The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, was unchanged from March at 62.7%, the highest since November.
There were more people working part-time because they could not find full-time employment, with the number increasing 135,000. But not many people were experiencing long periods of unemployment. The employment-to-population ratio, viewed as a measure of an economy’s ability to create employment, dipped to 60.2% from 60.3% in March.
“Despite missing expectations, signaling an economic cool down, the labor market has still maintained a pattern of growth and consumers can be cautiously optimistic that the Fed will be able to successfully lower inflation while also avoiding a recession,” said Steve Rick, chief economist at TruStage.