The US job market has been on a roll for the past three years. Some economists even say “it’s as good as it’s ever been.”
That storyline isn’t expected to change Friday when April’s jobs report lands at 8:30 am ET — but it’s possible there might be a slight softening to the strong gains seen in the first quarter.
“The longer interest rates are high, [the more] they put a slow squeeze on the economy,” Julia Pollak, chief economist at employment website ZipRecruiter, told CNN in an interview. “I think we will continue to see that gradual, fairly orderly slowdown in the labor market until [rates] start coming down.”
So far this year, the economy has added, on average, 276,000 jobs per month, Bureau of Labor Statistics data shows. That’s about 25,000 more jobs per month than last year and 111,000 more per month than in 2019.
For Friday’s report, economists are forecasting that employers added 232,500 jobs in April, which would be down from the estimated 303,000 net jobs added in March, according to FactSet consensus estimates. The unemployment rate is expected to stay at 3.8%.
If those expectations hold true, some already historic streaks would grow. It would be the 40th consecutive month of employment expansion (the fifth longest on record) and the 26th month in a row that the nation’s jobless rate held below 4% (nearly matching a 27-month streak from 1967 to 1970).
“The labor market, it’s as good as it’s ever been,” Mark Zandi, chief economist with Moody’s Analytics, said in an interview. “It’s not hyperbole; I’ve been doing this 35 to 40 years, and I’ve never seen anything like it.”
The leading factors that have helped the economy churn out month after month of solidly strong job gains have economists believing those streaks will continue.
In addition to high labor force participation rates among prime working age individuals, specifically prime working age women, the US labor market is benefiting from a boom in immigrant workers.
As of March, the number of employed foreign-born workers set a fresh record high of 31.1 million people, BLS data showed. The labor force participation rate of those workers was 65.9%, nearly 4 percentage points higher than the rate for native-born workers last month.
The stronger net immigration is also likely adding to productivity gains, which allow the economy to grow without rising inflation, economists have said.
“[Productivity is] the secret sauce to sustainable expansion,” Nick Bunker, economic research director for North America at the Indeed Hiring Lab, told CNN.
However, Bunker, fellow economists and even Federal Reserve Chair Jerome Powell are still trying to get their arms around the extent of the productivity growth in the US.
“It’s a really important, but incredibly volatile, quarterly measure,” Bunker said.
The BLS on Thursday released a fresh batch of productivity data that showed productivity growth in the first quarter picked up by 0.3% from the fourth quarter of last year, falling below economists’ expectations for a 0.9% gain.
“Nonfarm business sector labor productivity growth was weaker in [the first quarter], but don’t forget this comes on the back of three consecutive quarterly [gains] of more than 3% — a rare feat that occurred once in the pre-Covid decade,” Gregory Daco, EY Parthenon chief economist, posted Thursday on X.
Unit labor costs, or how much a business pays its workers to produce one unit of output, soared well above expectations, with a 4.7% quarterly increase.
From the year before, productivity and unit labor costs are up 2.9% and 1.8%, respectively.
Layoffs remain low
Layoff activity remains muted. The Job Openings and Labor Turnover Survey report released Wednesday showed that there were an estimated 1.53 million layoffs and separations during March, marking the lowest monthly total since December 2022.
Weekly jobless claims also have been solidly low. Last week, initial claims for unemployment benefits — considered a proxy for layoffs — were unchanged at 208,000, according to Labor Department data released Thursday.
Continuing claims, made by people who have filed for unemployment for at least one week, were also unchanged at 1.774 million, remaining at their lowest level since late-January.
In the decade before the pandemic (which included the longest-ever period of labor market expansion), initial claims averaged 311,000 per week, Labor Department data shows.
Other economic data shows similar trends. The latest layoff report from outplacement firm Challenger, Gray & Christmas showed that far fewer job cuts were announced in April than any month so far this year.
Challenger reported Thursday that US employers announced 64,789 job cuts last month, down 28% from March and 3.3% below April of last year.
“The labor market remains tight, but as labor costs continue to rise, companies will be slower to hire, and we expect further cuts will be needed,” Andrew Challenger, the firm’s senior vice president, said in a statement. “This low April figure may be the calm before the storm.”
Cost-cutting was the reason behind the lion’s share of the cuts; however, the report noted that a small slice of the month’s losses were attributed to artificial intelligence (800 cuts) and Texas’ new law curtailing diversity, equity and inclusion (DEI) initiatives at higher education institutions (80 job cuts).
While a hotter-than-expected labor market — and, especially, stronger-than-typical wage gains — may seem to fly in the face of the Fed’s desire to lower inflation, Powell said Wednesday the labor market is an example of the central bank’s monetary policy in action.
“Demand is still strong — the demand side of the labor market, in particular,” Powell said during the Fed’s post-meeting press conference. “But it’s cooled from its extremely high level of a couple of years ago.”
The labor market remains relatively tight, but supply and demand conditions have come into “better balance,” Powell said.
He noted the latest labor turnover data: On Wednesday, the BLS’ Job Openings and Labor Turnover Survey for March showed that job openings fell to a three-year low, hiring pulled back and fewer people quit their jobs.
He noted that the pace of wage gains has substantially moderated, although the descent has been a little bumpy.
Earlier this week, the Employment Cost Index showed compensation gains rose faster than expected during the first quarter. Come Friday morning, economists and the Fed will be closely watching the jobs report’s measure of wages, average hourly earnings, which were up 4.1% annually in March.
Still, Powell was also quick to clarify Wednesday that while an incremental softening in wage increases would better align with the Fed’s 2% inflation goal, he noted that central bankers are not putting a target on wage growth or the labor market.
“Last year, we saw really strong growth, a tight labor market and a historically fast decline in inflation,” he said. “That’s because we know that there are two forces at work here: There’s the unwinding of the pandemic-related supply side distortions and demand-side distortions; and there’s also restrictive monetary policy.”
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