- Nonfarm payrolls increase by 253,000 in April
- Unemployment rate drops from 3.5% to 3.4%
- Average hourly earnings rose 0.5%; An increase of 4.4% per annum
WASHINGTON, May 5 (Reuters) – U.S. job growth accelerated in April while wage gains rose solidly, pointing to sustained labor market strength that could keep interest rates high for longer as the Federal Reserve struggles to tame inflation.
The closely watched employment report from the Labor Department on Friday showed the unemployment rate fell to a 50-year low of 3.4%. Although the data for February and March were slightly revised, the labor market is only marginally slowing.
The U.S. Federal Reserve raised its benchmark overnight interest rate by 25 basis points to a range of 5.00%-5.25% on Wednesday, signaling that it may pause its campaign to tighten monetary policy at its fastest pace since the 1980s.
“The Fed may be wrong to indicate that they are pausing their rate hikes because there is absolutely zero evidence that the Bank is pressing the job of tightening monetary policy, which two or three rate hikes could do,” said Chairman Christopher Roepke. Economist at FWDBONDS in New York.
Nonfarm payrolls rose 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 previous six months.
The economy needs to create 70,000-100,000 jobs each month to keep up with the growth of the working-age population.
Professional and business services added 43,000 positions, with the services sector accounting for most of April’s job gains. But temporary help services employment, considered a precursor to future hiring, fell by just 23,000 positions and is down 174,000 from its peak in March 2022.
Healthcare wages increased by 40,000 in April. Employment in the leisure and hospitality sector increased by 31,000 jobs, mostly concentrated in restaurants and bars. Hiring has slowed in a sector that has been a key driver of job growth.
Employment in the industry is 402,000 jobs below its pre-pandemic level.
Wages in financial operations rose by 23,000, as did the government jobs category. Government employment is 301,000 positions below pre-pandemic levels. Manufacturing and construction wages rebounded after a decline in March.
The central bank has raised its policy rate by 500 basis points from March 2022.
US stocks opened higher. The dollar rose against a basket of currencies. US Treasury prices fell.
Fixed wage gains
However, some economists believe that the labor market is overstating the health of the economy, pointing to a disconnect between consumer spending and job gains and a continued decline in labor productivity.
Consumer spending stagnated in February and March. Productivity has declined on a year-over-year basis for five straight quarters since the government began tracking the series in 1948.
“It’s very strange in a growth year, and I think businesses are hoarding workers,” said Milton Ezratti, chief economist at Westate in New York. “Managers remember what happened in 2021 and they don’t want to be caught out.”
The hiring landscape is likely to change rapidly, with risks of a recession increasing due to punitive borrowing costs and tight credit conditions coinciding with financial market stress.
For now, the general consensus is that the economy will continue to create jobs through at least the fourth quarter.
Average hourly earnings rose 0.5% last month after advancing 0.3% in March. Wages rose 4.4% on a year-over-year basis in April after rising 4.3% in March. Other measures, such as the employment cost index and the Atlanta Fed’s wage tracker, also showed momentum. Wage growth has been too strong to match the central bank’s 2% inflation target.
The details of the household census, where the unemployment rate is calculated, are mostly muted. Domestic employment slowed, while the labor force declined somewhat. This saw the unemployment rate drop to 3.4% from 3.5% in March.
The labor force participation rate, or the proportion of Americans of working age or looking for work, remained unchanged at 62.6%. With the share of 25- to 54-year-olds at pre-pandemic levels, there is limited scope for further gains in participation rates.
Report by Lucia Muticani; Editing by Andrea Ricci
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