A pedestrian in the financial district of San Francisco on July 12, 2022.
Anyone looking for signs of an imminent downturn in the U.S. economy won't find it in the latest employment data.
That's the takeaway from the monthly jobs numbers out Friday, which showed an acceleration in hiring and pay gains in April as working-age Americans continued streaming back into the labor market.
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The combination of rising employment and wages is helping to underpin consumer spending, even as banking turmoil is raising recession fears. While faster pay growth will keep the Federal Reserve uneasy about inflationary pressures, it likely won't be enough to spur the U.S. central bank back into action after the Fed signaled earlier this week that its tightening cycle will probably pause at the next Federal Open Market Committee (FOMC) meeting.
"Labor market momentum is decelerating from a high level, but I don't see signs here that it's rolling over or that a recession is imminent," said Blerina Uruci, chief U.S. economist at T. Rowe Price. "But I do think the rapid tightening in monetary policy and the recent shock to credit conditions are eventually going to drive the U.S. economy into some kind of a contraction."
Non-farm payrolls increased 253,000 last month, following a downwardly revised 165,000 advance in March, according to Bureau of Labor Statistics (BLS) figures. The unemployment rate fell back to a multi-decade low of 3.4 percent, defying expectations for an uptick.
Metric | Actual | Median Estimate |
---|---|---|
Non-farm payrolls | +253,000 | +185,000 |
Unemployment rate | 3.4% | 3.6% |
Average hourly earnings growth (month-over-month) | +0.5% | +0.3% |
Job growth was broad-based, reflecting gains in healthcare, professional and business services, and leisure and hospitality. However, the prior two months of payrolls were revised lower by a combined 149,000.
The latest figures underscore the resilience of labor demand despite growing concerns about the toll that high interest rates, inflation, and tightening credit conditions are projected to take on the economy. While some businesses have paused hiring or laid off workers, others are still boosting pay in an effort to fill a multitude of open positions.
U.S. stocks and Treasury yields rose on the news.
Earlier this week, the Fed raised interest rates for a tenth (and possibly final) time in this cycle, in an effort to tame inflation. Chair Jerome Powell said that will likely require a period of below-trend growth and softer labor-market conditions.
Part of what the Fed would like to see is a further easing in pay gains. That didn't happen in today's report—average hourly earnings rose 0.5 percent in April, the most in about a year on an un-rounded basis. From a year ago, they were up 4.4 percent.
On the other hand, the labor market is coming more into balance: Not only are job postings declining, but more people have been coming off the sidelines in recent months. For those aged 25 to 54, the labor force participation rate—the share of the population that is working or looking for work—climbed in April to 83.3 percent, the highest since 2008.
What Bloomberg Economists Say…
"April's surprisingly robust jobs print shows that banking-sector strains since the collapse of Silicon Valley Bank haven't yet affected the labor market. … That said, it takes time for tighter credit conditions to flow through to the real economy, something the central bank will take into account."
— Anna Wong, Stuart Paul and Eliza Winger, economists
On net, investors don't see the latest data as altering the Fed's path forward. The odds of another rate hike in June are about the same as a rate cut, according to prices of interest-rate swaps. Traders did, however, pare expectations for rate cuts later in the year.
Powell, who's said his own expectation is that the economy will grow modestly this year, still acknowledged that the United States could experience a "mild recession." Many economists, however, see the labor market deteriorating more rapidly as the year goes on, underpinning expectations of a downturn.
"I've been surprised, admittedly—the jobs market, it's been pretty resilient thus far," said Lawrence Werther, chief U.S. economist at Daiwa Capital Markets. "But I think you're going to see material softening into the summer and fall."
—With assistance from Augusta Saraiva & Vince Golle.
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