Anticipating the details in the upcoming jobs update on Friday.
Today, the release of April's jobs report is expected to occur at 8:30 am ET. Although it's unlikely that the storyline will change significantly, a slight softening in the impressive first-quarter gains is possible due to persistently high interest rates.
Julia Pollak, chief economist at ZipRecruiter, highlights the impact of high interest rates on the economy. She shared with CNN that "the longer interest rates are high, the more they put a slow squeeze on the economy." She predicts a gradual slowdown in the labor market until rates start to fall.
Throughout this year, the US economy has consistently added jobs, with an average of 276,000 per month according to Bureau of Labor Statistics data. This is a considerable increase from last year's average and surpasses the 2019 average.
Friday's report is expected to show employers added 232,500 jobs in April, representing a decrease from the estimated 303,000 net jobs added in March. The unemployment rate is predicted to remain unchanged at 3.8%.
If these expectations hold true, four notable milestones will be reached. Firstly, this will be the 40th consecutive month of employment expansion, the fifth longest on record. Secondly, the nation's jobless rate will have held below 4% for the 27th month in a row, matching a record from 1967 to 1970. Finally, the labor market's robust health is highlighted by Mark Zandi, chief economist with Moody's Analytics, as he describes it as "the best it's ever been."
Numerous factors have contributed to these impressive job gains. These include high labor force participation rates among prime working age individuals, especially women, and a surge in immigrant workers. The growing number of employed foreign-born workers set a new record high in March with 31.1 million people, according to the Bureau of Labor Statistics. This group's labor force participation rate is also significantly higher than that of native-born workers.
The overseas immigration trend is also seen as an important factor contributing to productivity gains, allowing the economy to grow while controlling inflation. Production growth in the first quarter increased by 0.3% after a pickup from the previous quarter, disappointing economists who forecasted a higher 0.9% increase. However, the first quarter showed a notable growth of more than 3% in productivity, a rare feat before the pandemic. Although productivity and unit labor costs both increased on an annual basis by 2.9% and 1.8% respectively, productivity growth remains an elusive concept to economists.
Layoffs have been relatively minimal. The March jobs report revealed 1.53 million layoffs and separations, marking the lowest monthly total since December 2022. Initial and continuing jobless claims have remained low, with last week's initial claims unchanged at 208,000 and continuing claims unchanged at 1.774 million, hitting their lowest levels since late January.
During the decade before the pandemic, initial claims averaged 311,000 per week. More recent data seems to indicate that layoffs continue to be a rarity despite rising labor costs. Challenger's monthly layoff report reported a shockingly low 64,789 job cuts in April, down 28% from March and 3.3% below the same time last year.
Andrew Challenger, senior vice president at the firm, says: "The labor market remains tight, but as labor costs continue to rise, companies will be slower to hire, and we expect further cuts will be needed." Thus, this low April figure could be a precursor to future challenges in the labor market.
In summary, the US labor market remains strong, with impressive job growth and minimal layoffs, despite the growing concern over rising labor costs. Productivity growth is difficult to quantify, but it is believed to drive the economy's ability to expand without fueling inflation. Economic data suggests that layoff announcements continue to decrease, indicating the sustained strength of the labor market. Challenger's findings show that layoffs have recently been at minimal levels. However, these calm numbers could be preparing the market for forthcoming challenges.
Reducing expenses led to the majority of the reductions noted in the report. However, a minor portion of the month's losses were attributed to artificial intelligence-related cuts (800 positions) and job losses resulting from Texas' law limiting diversity, equity, and inclusion initiatives at higher education institutions (80 positions).
In a somewhat contradictory development, Fed chairman Powell mentioned in a press conference on Wednesday that despite a hotter than anticipated job market, particularly the accelerated wage increases, these occurrences could be viewed as proof of the Fed's monetary policy effectiveness. Powell emphasized that while demand remains high, it has slightly cooled from its peak of a few years ago. He also discussed the latest turnover report from the Labor Department, wherein job openings declined to their lowest level in three years, hiring decreased, and fewer workers abandoned their jobs. Additionally, he highlighted that while the pace of wage gains has moderated significantly, there have been a few hiccups along the way.
This week, the Employment Cost Index showed that compensation growth exceeded expectations during the first quarter. On Friday, economists and the Fed will pay close attention to the job report's wage details, specifically the average hourly earnings, which climbed 4.1% annually in March.
Although an incremental decrease in wage hikes would align better with the Fed's 2% inflation target, Powell made clear that the central bank takes no specific aim at wage growth or the labor market. He explained that the rapid growth, tight labor market, and unexpectedly fast decline in inflation during the previous year were the result of two factors: the elimination of pandemic-related supply and demand distortions and the restrictive monetary policies implemented.
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The business impact of high interest rates was discussed by Julia Pollak, who mentioned that they put a slow squeeze on the economy and could lead to a gradual slowdown in the labor market. In the upcoming jobs update, a slight softening in the impressive first-quarter gains is expected due to persistently high interest rates.
Source: edition.cnn.com
