The U.S. labor market continues to create jobs at an appreciable rate, but lower than economists expected. According to the Bureau of Labor Statistics, the world‘s largest economy created 175,000 jobs in April, less than what economists expected, who estimated a creation of about 240,000 jobs. The unemployment rate has risen one tenth, to 3.9%, equaling the revised level of February. Even though it is low, it is the highest since January 2022, in just over two years.
The jobs created, according to this first estimate, are also the lowest figure since October. The buoyant situation in the labor market is among the factors that have prevented a reduction in interest rates, so the cooling in April is good news for the central bank. The slowdown in activity in the labor market seems a symptom that high interest rates are somewhat slowing economic activity. Even so, the data for one month, pending review, is not significant enough to draw conclusions.
In the United States, the state of the labor market is measured through two surveys. One, carried out for companies, allows us to estimate the creation of non-agricultural employment each month and is the one most followed by investors and markets. Another, made to households, is used to calculate the unemployment rate. Sometimes the results of both are a bit contradictory. In fact, this has been happening systematically over the last year and was repeated in April.
While the survey of companies shows these 175,000 new non-agricultural jobs, the survey of households shows only 25,000 more employed in April. That, with a greater increase in the active population, explains why the unemployment rate has increased by one tenth. The contrast is greater when looking at the last 12 months. In that period, the employer survey indicates that 2.8 million jobs have been created. On the other hand, according to the household survey, the employed population closed April at 161,491,000 people, 99,000 jobs less than a year ago.
In April, employment increased in the healthcare, social assistance, and transportation and warehousing sectors, according to the business survey.
The strong job creation in the heat of the recovery from the pandemic is for now one of the assets of Joe Biden’s presidency. That the labor market is beginning to cool is not the best news six months before the elections. Even so, Biden has celebrated the data in a statement distributed by the White House: “With today’s report of 175,000 new jobs, the great American recovery continues. When I took office, I inherited an economy on the brink, with the worst economic crisis in a century. He had a plan to turn our country around and build our economy from the center out and from the bottom up. Now we’re seeing that plan in action, with more than 15 million jobs created since I took office, working-age women employed at a record pace, wages rising faster than prices, and unemployment below 4 % for a record 27 consecutive months,” he indicated.
Good news for the Fed
The average hourly wage for nonfarm private sector wage earners increased seven cents, or 0.2%, to $34.75. In the last 12 months, the average hourly wage has increased by 3.9%. It is another measure that the monetary authorities monitor so that a spiral of prices and salaries is not created that entrenches inflation. In this case, the pace has been reduced, from 4.1% in March.
That’s also good news for Federal Reserve Chairman Jerome Powell. The central bank has raised the price of money at the most aggressive pace in four decades, but since July of last year it has been stuck at 5.25%-5.5%. The persistence of inflation well above the 2% target has led the central bank to correct the roadmap according to which it expected three cuts of 0.25 points in the remainder of the year. Now, the markets believe that there will be at most one or two cuts, and they do not even take them for granted.
“We have the luxury of strong growth in a strong labor market, very low unemployment, high job creation and all that, and we can be patient and we will be prudent and cautious in making the decision to cut rates.” said Jerome Powell, after the monetary policy committee meeting this Wednesday. Powell recalled that the Federal Reserve has the dual mandate of achieving maximum employment and price stability. “When you look at the two objectives of the mandate, if one of them is further from the objective than the other, you have to focus on that,” he said, referring to inflation.
In his speech on Wednesday, the Fed chairman seemed to rule out a scenario of possible additional interest rate hikes. However, this Friday, central bank advisor Michelle Bowman was somewhat harsher in a speech at the Annual Convention of the Massachusetts Bankers Association, in Key Biscayne (Florida). “Although the current stance of monetary policy appears restrictive, I remain willing to raise the federal funds rate at a future meeting if new data indicate that inflation gains have stalled or reversed. Restoring price stability is essential to achieving maximum employment in the long term,” she indicated.
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