The American job market may be shifting into a lower gear this spring, a turn that economists have expected for months after a vigorous rebound from the pandemic shock.
Employers added 175,000 positions in April, the Labor Department reported Friday, undershooting forecasts. The unemployment rate ticked up to 3.9 percent.
A less torrid expansion after the 242,000-job average over the prior 12 months isn’t necessarily bad news, given that layoffs have remained low and most sectors appear stable.
“It’s not a bad economy; it’s still a healthy economy,” said Perc Pineda, chief economist at the Plastics Industry Association. “I think it’s part of the cycle. We cannot continue robust growth indefinitely considering the limits of our economy.”
The labor market has defied projections of a considerable slowdown for over a year in the face of a rapid escalation in borrowing costs, a minor banking crisis and two major wars. But economic growth declined markedly in the first quarter, suggesting that the exuberance that characterized the last two years might be settling into a more sustainable rhythm.
Wage growth moderated sharply in April, sinking to 3.9 percent from a year earlier. Swift wage growth in the first quarter, evidenced by a hotter-than-expected Employment Cost Index reading, may have in part reflected raises and minimum-wage increases going into effect in January as well as new union contracts.
The average number of hours worked per week sank, another signal of a decline in labor demand.
The numbers may be welcome news for the Federal Reserve, which has been holding interest rates steady as inflation has remained stubborn. Although the Fed chair, Jerome H. Powell, said this week that he wasn’t targeting lower wage growth, he added that sustained hot pay gains could prevent inflation from being tamed.
Bond yields fell on the new data, indicating a belief that the Fed may cut rates this year after some doubt that it would do so, and the S&P 500 was up sharply in morning trading.
The payroll number is in line with other indicators of slackening conditions that have mounted in recent months: Job openings have fallen substantially from their peak two years ago, and workers are quitting their jobs at lower rates than they were before the pandemic.
“We’ve seen a significant easing in labor demand, and it’s not a surprise that hiring is also slowing down in this economic environment where interest rates are still elevated,” said Lydia Boussour, a senior economist at the consulting firm EY-Parthenon. “We are also seeing cost fatigue from consumers and businesses, which is putting downward pressure on private sector activity.”
Employment growth has been narrowing to a few industries, and that trend continued in April, with health care accounting for a third of the growth.
Leisure and hospitality employment was essentially flat, arresting what had been fairly swift growth as the industry approaches its prepandemic staffing levels.
Lulls in interest-rate-sensitive sectors like technology and manufacturing have been offset by unabated growth in industries like health care, which is powered by aging demographics, and state and local government, which has been catching up after losing workers to better offers during the pandemic.
Federal funding has supported construction work on large infrastructure projects and private investment in clean energy development, as well as subsidies for industries like child care that continue to filter through the economy.
“Depending on where you land, it’s a question of how many of us can end up working for the government in some form or fashion,” said Belinda Román, an associate professor of economics at St. Mary’s University in San Antonio.
As wages have risen — outpacing inflation on average for nearly a year — more people have started looking for jobs, allowing employers to fill positions more quickly. The increased flow of both legal and undocumented immigrants added about 80,000 workers to the labor supply each month last year, according to calculations by Goldman Sachs, and will add another 50,000 per month this year.
And beyond public spending, much of the enduring strength stems from purchases by households, which have been burning through bank balances built during the pandemic. As savings rates decline and delinquency rates on consumer loans rise, that rocket fuel is likely to run dry, leaving an economy that’s still fundamentally sound.
“We are still forecasting what we’d call a modest slowdown, but we’ve got the picture improving again,” said Stephen Brown, deputy chief North America economist for Capital Economics. “For the average worker, it’s not going to feel like a slowdown.”