Slower US job growth expected in April; unemployment rate seen rising to
3.6%
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[May 05, 2023] By
Lucia Mutikani
WASHINGTON (Reuters) - U.S. employers likely hired the fewest workers in
nearly 2-1/2 years in April as the cumulative and delayed effects of
higher interest rates start to impact a broad swath of the economy.
But the Labor Department's closely watched employment report on Friday
will offer little comfort to Federal Reserve officials battling high
inflation, with wage growth expected to have remained fairly strong last
month. The unemployment rate is forecast to have risen to a still
historically low 3.6%.
The Fed raised its benchmark overnight interest rate by another 25 basis
points to the 5.00%-5.25% range on Wednesday, and signaled it may pause
the U.S. central bank's fastest monetary policy tightening campaign
since the 1980s, though it kept a hawkish bias. The Fed has hiked its
policy rate by 500 basis points since March 2022.
"The labor market is slowly bending, but not breaking," said Sam
Bullard, a senior economist at Wells Fargo in Charlotte, North Carolina.
"There is continued resilience in the labor market right now, but the
trend is one that is continuing to see a decelerating pace of momentum."
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The survey of establishments is likely to show nonfarm payrolls
increased by 180,000 jobs last month, according to a Reuters survey of
economists. That would be the smallest gain since December 2020 and
would follow a 236,000 rise in March.
While that would also mark the third straight month of deceleration in
employment gains, payrolls would be well above the 70,000-100,000
monthly increase needed to keep up with growth in the working-age
population.
Some economists, however, believe that the labor market is overstating
the health of the economy, pointing to the divergence between consumer
spending and job gains as well as a continued decline in worker
productivity. Consumer spending stalled in February and March.
Productivity has declined on a year-year basis for five straight
quarters, the longest such stretch since the government started tracking
the series in 1948.
"This is very strange in a growth year, and I think it says that
businesses are hoarding workers," said Milton Ezrati, chief economist at
Vested in New York. "Managers remember what happened in 2021 and they
don't want to be caught short."
Economists also noted that job growth was becoming more concentrated in
the leisure and hospitality industry as well as state and local
governments, sectors where employment remains below pre-pandemic levels.
With risks of a recession mounting because of the punitive borrowing
costs and tighter credit conditions amid financial market stress, the
hiring landscape could change quickly.
"A key issue is to what extent layoffs and a credit crunch will mushroom
out to the broader economy and that hinges mostly on how well consumer
spending holds up," said Kevin Cummins, chief economist at NatWest in
Stamford, Connecticut. "If consumer outlays slow dramatically, then the
overall impact of the banking sector turmoil/credit crunch on jobs will
probably be quite significant."
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![](../images/050523PIX/busine28.jpg)
An employee hiring sign with a QR code
is seen in a window of a business in Arlington, Virginia, U.S.,
April 7, 2023. REUTERS/Elizabeth Frantz
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For now, the general consensus is that the economy will continue to
create jobs at least until the fourth quarter.
The service-providing sector likely accounted for most of the
anticipated job gains in April. Further job losses are expected in
the goods-producing sector, mostly reflecting declines in
construction and manufacturing.
Construction was an early casualty of the aggressive monetary policy
tightening due to the impact of higher rates on homebuilding.
WAGE GAINS MODERATE
Average hourly earnings are expected to have risen by 0.3% in April,
matching March's gain. That would keep the year-on-year increase in
wages unchanged at 4.2% in April.
But other measures such as the Employment Cost Index and the Atlanta
Fed's wage tracker show momentum. Even at the current pace, wage
growth in the employment report remains too strong to be consistent
with the Fed's 2% inflation target.
"There is some risk that the growth rate of this series might firm
up this spring to narrow the gap with other wage series," said Lou
Crandall, chief economist at Wrightson ICAP.
The average workweek is forecast unchanged at 34.4 hours. Some
companies are probably reducing hours rather that cut jobs.
Details of the household survey from which the unemployment rate is
calculated are likely to be muted. Household employment is seen
moderating after surging in March.
The labor force participation rate, or the proportion of working-age
Americans who have a job or are looking for one, is forecast
unchanged at 62.6%. With the share of those aged 25 to 54 at
pre-pandemic levels, there is limited scope for further gains in the
participation rate.
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"The rebound in the labor supply has been encouraging as it can act
as a relief valve against elevated wage pressures," said Lydia
Boussour, senior economist at EY-Parthenon in New York. "However,
labor force participation remains constrained by demographics and
should come under pressure in coming quarters as conditions worsen
and job opportunities become scarce."
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)
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