- Non-farm payrolls increase by 253,000 in April
- Unemployment falls to 3.4% from 3.5%
- Average hourly wage increase 0.5%; up 4.4 percent from the previous year
WASHINGTON, May 5 (Reuters) – U.S. job growth accelerated in April while wage growth rose solidly, pointing to continued strength in the labor market that could force the Federal Reserve to keep interest rates higher for longer as it struggles to bring inflation under control.
The Labor Department’s closely watched employment report on Friday also showed the unemployment rate fell back to a 53-year low of 3.4%. Although data for February and March were revised sharply lower, the labor market is only marginally declining. It suggested there was yet to be an impact on the economy from tighter credit conditions, which, along with the Fed’s punitive rate hikes, have raised the risk of a recession.
“Interest rates need to stay high,” said Sean Snaith, director of the University of Central Florida’s Institute for Economic Forecasting. “This kind of strength in the labor market makes it more difficult for the Fed to continue its reduction in inflation.”
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 has averaged 290,000 jobs per month over the past six months. Economists polled by Reuters had predicted that payrolls would rise by 180,000.
The economy needs to create 70,000-100,000 jobs every month to keep up with the growth in the working-age population. The proportion of private industries that add jobs rose to 57.4% from 57%.
The larger-than-expected increase in payrolls may indicate some spring growth in the economy after activity slowed in February and March.
Data this week showed that manufacturing hit a three-year low and that growth in the service sector picked up slightly. Sales of cars also accelerated last month.
President Joe Biden seized on the jobs report to urge Congress to raise the federal government’s borrowing limit amid projections that it could run out of money in June, a development that could cause major damage to the economy.
“The last thing this country needs, after everything we’ve been through, is a manufactured crisis,” Biden said ahead of a meeting on US investment. “It’s a manufactured crisis fueled by the MAGA Republicans in Congress.” MAGA is the acronym for the “Make America Great Again” slogan of former President Donald Trump.
The US central bank raised its overnight benchmark interest rate by another 25 basis points to a range of 5.00%-5.25% on Wednesday, signaling it may pause its fastest monetary tightening campaign since the 1980s, although it maintained a hawkish bias. The Fed has raised the policy rate by 500 basis points since March 2022.
The services sector accounted for most of the job gains in April, with 43,000 positions for professional and business services. But employment in temporary help services, seen as a harbinger of future hiring, fell by just over 23,000 positions and is down 174,000 since its peak in March 2022.
Salaries in the healthcare system increased by 40,000. Employment in the leisure and hospitality industry increased by 31,000 jobs, mainly concentrated in restaurants and bars. Employment in the sector, which has been the main driver of job growth, is declining.
Employment in industry is still 402,000 jobs below the level before the pandemic.
Financial services payrolls rose by 23,000, as did the government jobs category. Public employment is still 301,000 positions below the pre-pandemic level. Wages in manufacturing, retail and construction picked up after a decline in March.
The report poured cold water on the financial market’s expectations that the Fed would start cutting interest rates this year. Consumer price index data for April, due next Wednesday, will provide more clues about the short-term path of monetary policy.
Stocks on Wall Street traded higher. The dollar fell against a basket of currencies. US Treasury yields rose.
SOLID WAGE PROFITS
Some economists said hoarding by businesses after labor shortages in the wake of the COVID-19 pandemic contributed to strong job growth, which most expected to persist at least through 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, and came close to aligning with other measures such as the Employment Cost Index and the Atlanta Fed’s wage gauge. Wage growth is too strong to be consistent with the Fed’s 2% inflation target.
While the working week was unchanged at 34.4 hours, total hours worked increased by 0.2%. This resulted in an increase of 0.7% in wages.
The increase in business output early in the second quarter and the increase in hours worked bode well for a rebound in productivity, which rose immediately after the pandemic in 2021 but has fallen on a year-over-year basis since then for five straight quarters, the longest such the stretch since the government began tracking the series in 1948.
“The outlook for a rebound in productivity in the second quarter looks good,” said Brian Bethune, a professor of economics at Boston College. “That will limit unit labor costs, and all other costs should see their first outright decline in years. The outlook for gradual disinflation in the second and third quarters still looks good.”
The details from the household survey on which unemployment is calculated were positive. Household employment increased, while the labor force fell modestly.
This led to the unemployment rate falling to 3.4%, corresponding to the lowest level since 1969, from 3.5% in March. Black unemployment hit a new record low of 4.7%.
The labor force participation rate, or the share 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 ratio of employment to the prime-age population, seen as a measure of an economy’s ability to create jobs, rose to 80.8%, the highest level since May 2001.
“The recession has not yet begun,” said Steven Blitz, chief U.S. economist at TS Lombard in New York.
Reporting by Lucia Mutikani; Editing by Andrea Ricci
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