EXPLAINER: More pressure on Fed from April jobs report | Economic news
By CHRISTOPHER RUGABER, AP business journalist
WASHINGTON (AP) — Friday’s jobs report for April provided mixed signals on the economic issue that worries Americans most: chronically high inflation.
On the one hand, the proportion of people working or looking for work fell in April after a series of increases. Having fewer people in the workforce means employers must raise wages to try to fill a record number of open jobs. Firms generally pass these higher labor costs on to consumers in the form of higher prices.
By contrast, average hourly wage increases slowed last month and weakened over the past three months, a trend that could ease inflationary pressures.
The offsetting trends come as the Federal Reserve accelerated its fight against inflation, which hit a four-decade high. This week, the Fed raised its key rate by half a percentage point – its most aggressive move since 2000 – and announced further significant rate hikes to come. Higher rates can slow borrowing and spending, but also risk triggering a recession.
The evolution of inflation and the economy over the next few months will be decisive for the Fed to succeed in slowing the rise in prices without torpedoing growth.
Friday’s Labor Department report showed employers added 428,000 jobs in April, the 12th consecutive month of gains of 400,000 or more. The unemployment rate remained unchanged at 3.6%, just a tenth above its pre-pandemic level, the lowest rate in 50 years.
Here are five takeaways from the jobs report:
WORKFORCE REDUCTION COMPLICATES THE FED’S WORK
The proportion of Americans working or looking for work fell in April to 62.2% from 62.4% after three months of increases. April’s decline, although lasting only a month, ended an upward trend in the number of job seekers. Fewer workers and higher wages could make inflation harder to control.
“If the supply (of workers) does not pick up, these wage pressures are not going to subside,” said Peter Hooper, global head of economic research at Deutsche Bank. “And that means the Fed will have to do more,” which is to keep raising its key short-term rate, which would mean more expensive borrowing across the economy.
WAGES ARE RISING SLOWER
The average hourly wage rose 10 cents to $31.85 in April, a decent gain and a solid 5.5% more than a year ago. Still, that pace is well below the latest year-over-year inflation rate of 8.5%. As a result, most Americans lose purchasing power even as their wages rise.
That said, wage gains appear to be slowing, which could help reduce inflation. The average wage increase of 0.3% in April was lower than the 0.5% increase in March. And over the past three months, hourly wages have risen 0.9%, the slowest three-month pace in a year.
Higher wages are of course good for workers. But if they increase too quickly, without an increase in worker productivity, this tends to accelerate inflation. Slower wage growth, on the other hand, may be more sustainable because it helps contain inflation and allows the Fed to implement fewer rate hikes.
A STRONG HIRING CAN BE CHILLING
In Friday’s jobs report, there were other signs, aside from wages, that job growth could slow somewhat after a year of robust gains. The number of temporary workers hired is an indicator of the direction the labor market will take. Typically, employers use temporary employees to manage growing demand until they can find the permanent workers they need.
In both March and April, the number of temporary jobs remained unchanged, after increasing in January and February. Such a decline may suggest that employers see a slightly less need for workers.
And overall hiring, while strong, was down slightly. Employers have added an average of 523,000 jobs over the past three months, compared to a three-month average of 549,000 in March and 602,000 in February.
Finally, the government revised down its estimate of job gains for February and March by a total of 39,000. It’s a relatively small number that doesn’t really change the overall picture. But revisions can indicate which direction the economy is heading, and nearly all of the revisions in previous months had been positive.
A slowdown is somewhat inevitable given the rapid pace of hiring and the limited supply of workers and may simply signal a shift to weaker, but more sustainable gains.
“We couldn’t maintain the same pace as last year,” said Aaron Sojourner, a labor economist at the University of Minnesota. “We have to slow down.”
BLACK AMERICANS GO FOR SOLID GAINS
In April, the gap between black and white workers narrowed, with more black Americans seeking and finding work, while the number of whites in the labor force fell. Racial employment gaps have been steadily narrowing since the start of the pandemic recession.
Unemployment for African Americans fell to 5.9% from 6.2% in March. For white workers, it was unchanged at 3.2%. And the proportion of black Americans who have a job or are looking for one rose to 62.3%, above the rate of white Americans at 61.9%. The white rate has declined in recent years partly due to retirements.
While the numbers are volatile month-to-month, it’s only the second time black workers have surpassed whites in labor market participation since 1972, after first doing so. in June.
MEN ARE WORSE THAN WOMEN
Women were initially more affected by the labor force than men after the pandemic hit the economy, in part because industries with many female workers – retail, health care, restaurants – cut many million jobs. Some women also quit or stopped looking for work when schools closed and implemented e-learning.
Since then, things have calmed down a bit. In April, the unemployment rate for men fell from 3.6% to 3.8%. For women, it went from 3.6% to 3.5%.
Men are even more likely to be in the labor market. But their participation rate has increased less over the past year than that of women. The activity rate for men increased by four tenths of a point to reach 68%. Women increased by six tenths to 56.7%.
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