The U.S. labor market could shift into lower gear this spring, a turning point that economists have been waiting for months after a strong rebound from the pandemic shock.
Employers added 175,000 positions in April, the Ministry of Labor reported Friday, below forecasts. The unemployment rate reached 3.9 percent.
A less scorching expansion after the 242,000 jobs average over the previous 12 months isn’t necessarily bad news, given that layoffs have remained low and most sectors appear stable.
“It’s not a bad economy; it’s still a healthy economy,” said Perc Pineda, chief economist for the Plastics Industry Association. “I think it’s part of the cycle. We cannot pursue robust growth indefinitely given the limitations of our economy.
The labor market has defied expectations of a significant slowdown for more than a year in the face of rapidly escalating borrowing costs, a minor banking crisis and two major wars. But economic growth fell sharply in the first quarter, suggesting that the exuberance of the past two years may be settling into a more sustainable pace.
Wage growth slowed, with average hourly wages up 3.9 percent year-over-year, compared to 4.1 percent in the March report. Rapid wage growth in the first quarter, as evidenced by a stronger-than-expected increase Employment Cost Index reading, may have partly reflected minimum wage increases and increases that took effect in January as well as new union contracts.
The number of hours worked per week has fallen, another sign that employers need fewer staff. A broader measure of unemployment this figure, which includes people working part-time for economic reasons, increased slightly to 7.4%, compared to the all-time low at the end of 2022.
These results could be good news for the Federal Reserve, which has kept interest rates stable while inflation remained stubborn. Although Fed Chairman Jerome H. Powell said this week he was not targeting lower wage growth, he added that sustained wage increases could keep inflation from easing.
Bond yields fell on the new data, indicating the Fed could cut rates this year after doubts it would do so, and stocks rebounded.
President Biden celebrated the report as a continuation of the “Great American Comeback,” but his presumptive rival in the November election, former President Donald J. Trump, called it “HORRIBLE JOBS FIGURES” on his Truth Social platform. Under Mr. Trump’s presidency, before the pandemic took hold in March 2020, monthly job gains averaged about 180,000, slightly more than April’s gain.
April’s results are consistent with other indicators of slowing conditions that have increased in recent months: Job postings have increased. fell considerably compared to their peak two years ago, and workers are leaving their jobs at lower rates than before the pandemic. And the hiring figures for February and March, higher than forecasts, could have been flattered by a particularly mild winter.
“We have seen a significant slowdown in labor demand, and it is not surprising that hiring is also slowing in this economic environment where interest rates are still high,” said Lydia Boussour, an economist senior at the consulting firm EY-Parthenon.
Job growth narrowed to a few sectors, and that trend held up in April’s seasonally adjusted numbers, health care – which is fueled by an aging population and doesn’t fluctuate as much with business cycles – representing a third of growth.
Employment in leisure and hospitality increased only slightly, halting fairly rapid growth as the sector approaches its pre-pandemic workforce levels.
The effect of rising interest rates has been clearly visible in manufacturing, a capital-intensive sector where employment has remained essentially flat since late 2022. Federal incentives for semiconductor production and of clean energy equipment generate investments, but the impact on employment has been moderate. .
That’s the case at Voith Hydro in York, Pa., a maker of machines for dams and pumped storage facilities, which are a way to manage electricity demand. Some orders were accelerated by the Infrastructure Investment and Jobs Act, and recently by tax relief in the Inflation Reduction Act. supported the installation of new equipment.
Although Voith signed a new contract with its union workers last year with better wages and benefits to remain competitive with neighboring employers, its workforce of 350 has not grown significantly.
“There are fewer people entering the trades and there is a smaller pool of people to choose from,” said Carl Atkinson, vice president of sales and marketing for the hydropower division. “It just challenges a whole group of manufacturers to be more efficient.”
This strategy has contributed to strong productivity growth in recent quarters, which has allowed wages to rise faster than prices. Depending on how many people start looking for work, these efficiency gains could also lead to higher unemployment rates. But so far, the supply of workers has been a key factor in the surprisingly strong job growth of the past two years.
That’s partly because of the increased flow of legal and undocumented immigrants, which added about 80,000 workers per month to the labor force last year, according to Goldman Sachs calculations, and will add another 50,000 per month. month this year. Brookings Institution Economists estimated that immigration would create 160,000 to 200,000 jobs per month in 2024 without fueling inflation.
But the availability of workers was also boosted by women aged 25 to 54 – generally considered prime working years – who set a labor force participation record of 78 percent in April.
Among those returning to the workforce this year is Juliette Gore, 46, who worked in sales for the credit reporting company Equifax before taking time off to raise her three sons. She later started a computer networking equipment business with her husband in an Atlanta suburb, but sold her stake during their divorce in 2022.
After spending a year renovating her home, Ms. Gore began looking for work in early 2024. This proved to be bad timing, as employers in the professional services sector were pulling out after a period of rapid hiring . She sent out dozens of applications but only landed two interviews, and the closest thing to a job offer was paid far less than she would accept.
“I think it’s going to take a lot longer than expected,” Ms. Gore said. “Some say things won’t get better until early next year.”
Reduced job availability may also push some people to turn to gig jobs, which is not reflected in the monthly employer survey. According to a Bank of America Analysis According to its own data, the share of accounts with app-based revenue hit an all-time high in the first three months of this year, driven primarily by ride-hailing revenue.
A rise in the unemployment rate could dampen spending by consumers, who have also depleted bank balances built during the pandemic, but would still leave the economy still fundamentally healthy.
“We still expect what we would call a slight slowdown, but we are seeing further improvement in the situation,” said Stephen Brown, deputy chief economist for North America at Capital Economics. “To the average worker, this won’t look like a slowdown.”
