The U.S. job market has beaten expectations yet again. In April, payroll employment rose by 253,000 and the unemployment rate fell to 3.4% (a more than half-century low). However, gains in February and March were revised downward by 149,000. The unemployment rate for African-Americans hit its lowest level in history. Average hourly earnings over recent months were firmer – a sign that wage growth remains elevated. Overall, the labor market continues to shrug off recession fears and is powering along nicely.
Beyond full employment?
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The prime-age employment-to-population (EPOP) ratio rose to 80.8%, above its pre-COVID mark. EPOP is perhaps the best indicator of full employment – a sign that everyone who wants a job can get one.
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Black unemployment sets a new low
Given this full employment economy, it’s welcome news to see historically disadvantaged groups achieve historic gains. The unemployment rate for Black Americans fell sharply to 4.7%, setting a new low since the beginning of the series in the 1970s. “A rising tide lifts all boats.”
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That said, disparities in unemployment by race still persist.
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Wage growth firming up
Average hourly earnings, not adjusted for inflation, accelerated slightly in April for private sector non-managers. This is consistent with recent figures from the Employment Cost Index showing wage growth remains elevated. This could be a worrisome sign for the Fed. While earnings growth cooled on a year-over-year basis, the one- and three-month growth rates ticked up to around 4.7% (annual rates). This is clearly inconsistent with 2% inflation.
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Job growth strong among services industries
Once again, service-providing sectors saw incredible gains, while goods-producing industries are puttering along. Professional and business services led the way with 43,000 new jobs; healthcare was up 40,000; and leisure and hospitality was up 31,000. Goods-adjacent sectors, such as warehousing, just barely rose (up 4,000). One sign of concern: temporary help services employment declined, perhaps a sign of slowing hiring in the future.
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Conclusion
For over a year now, the U.S. labor market has exceeded expectations. While job growth is definitely slowing, it’s holding up better than forecasters expected. The rise in labor supply is a welcome sign for recruiters. We’re nowhere near a recession in the present moment. However, two potential warning signs are evident in today’s report: (1) wage growth is not cooling as the Fed had hoped, which could give impetus for driving interest rates higher and holding them there for longer; and (2) temporary help services have declined, and historically that has been the proverbial “canary in the coal mine” of future hiring slowdowns.