US labor market rejects rate hike, posts strong job gains

The closely watched jobs report from the Labor Department on Friday also showed the unemployment rate returned to a 53-year low of 3.4%. Although the data for February and March were revised sharply lower, the labor market eased marginally. It suggested the economy had yet to take a hit from tighter credit conditions, which combined with the Fed’s punitive rate hikes, raised the risk of a recession.

“Interest rates will have to stay high,” said Sean Snaith, director of the Institute for Economic Forecasting at the University of Central Florida. “Such strength in the labor market makes it more difficult for the Fed to continue easing inflation.”

Non-farm payrolls increased by 253,000 jobs last month, but the economy created 149,000 fewer jobs in February and March than previously reported. Job growth averaged 290,000 jobs per month over the past six months. Economists polled by Reuters had forecast payrolls would increase by 180,000.

The economy needs to create 70,000–100,000 jobs every month to keep pace with the increase in the working-age population. The share of private industries adding jobs increased from 57% to 57.4%.

A higher-than-expected increase in payrolls could signal some spring revival in the economy after activity slowed in February and March.

Data this week showed manufacturing fell to a three-year low and services sector growth was picking up slightly. Sales of motor vehicles also picked up last month.

President Joe Biden seized on the jobs report and urged Congress to raise the federal government’s borrowing limit amid projections it would run out of money in June, a development that could do much damage to the economy.

“The last thing this country needs is a manufactured crisis,” Biden said before a meeting on US investment. “This is a manufactured crisis driven by mega Republicans in Congress.” MAGA is an abbreviation for former President Donald Trump’s “Make America Great Again” slogan.

The US central bank raised its benchmark overnight interest rate by 25 basis points to 5.00%-5.25% on Wednesday, signaling it may pause its sharpest monetary policy tightening campaign since the 1980s. It did however hold a flamboyant bias. The Fed has hiked its policy rate by 500 basis points through March 2022.

The service-providing sector gained most of the jobs in April, adding 43,000 positions in professional and business services. But temporary help service employment, which is seen as a harbinger for future hiring, has dropped by just over 23,000 positions and is down from 174,000 since its peak in March 2022.

Healthcare payrolls increased by 40,000. Employment in the leisure and hospitality industry increased by 31,000 jobs, mostly concentrated in restaurants and bars. Hiring in the sector, which has been the main job growth driver, is slowing.

Employment in industry remains 402,000 jobs below their pre-pandemic level.

Financial activities payrolls increased by 23,000 as a category of government jobs. Government employment remains at 301,000 positions from its pre-pandemic level. Manufacturing, retail and construction payrolls rebounded after a decline in March.

The report fueled financial market expectations that the Fed would begin cutting interest rates this year. Consumer price index data for April, due for release next Wednesday, will provide more clues on the near-term path of monetary policy.

Shares were trading higher on Wall Street. The dollar fell against a basket of currencies. US Treasury yields rose.

solid salary benefits

Some economists said hoarding by businesses following difficulties in finding labor following the COVID-19 pandemic was contributing to strong job growth, which was expected to last through at least the fourth quarter.

Average hourly earnings rose 0.5% last month after rising 0.3% in March. Wages rose 4.4% on a year-over-year basis in April after climbing 4.3% in March, which is closer to alignment with other measures such as the Employment Cost Index and the Atlanta Fed’s wage tracker. Wage growth has been too strong to be consistent with the Fed’s 2% inflation target.

While the working week was unchanged at 34.4 hours, total working hours increased by 0.2%. This generated a 0.7% gain in payroll.

An increase in business output at the start of the second quarter and an increase in working hours bode well for a productivity boom, which peaked in 2021 right after the pandemic but has since declined on a year-over-year basis. for five straight quarters, the longest stretch since the government began tracking the series in 1948.

“The prospects for a productivity recovery in the second quarter look good,” said Brian Bethune, an economics professor at Boston College. “This will moderate unit labor costs, and all other costs should see an outright decline for the first time in many years. Prospects for gradual deflation in Q2 and Q3 still look good.”

The details of the household survey from which the unemployment rate is calculated were upbeat. Household employment increased, while the labor force declined marginally.

This caused the unemployment rate to fall to 3.4%, matching the lowest level since 1969, which was 3.5% in March. The unemployment rate for blacks reached a new record low of 4.7%.

The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, was unchanged at 62.6%. But the share of those aged 25 to 54 rose to a 15-year high of 83.3%.

The prime-age employment-to-population ratio, which is seen as a measure of the economy’s ability to create jobs, rose to 80.8%, the highest level since May 2001.

“The recession hasn’t started yet,” said Steven Blitz, principal US economist at TS Lombard in New York.