Mario Tama
U.S. economy's pace of adding jobs is expected to slow in April from previous months but still remain relatively robust.
In the nonfarm payroll report due to be released on Friday, economists expect that 178K of jobs were added in April, down from the 236K increase in March, and far lower than the average monthly gain of 344K over the previous six months.
Generally, the economy needs to add about 100K jobs to absorb new entrants into the workforce. The higher the number of new jobs above that figure, the harder it is for employers to hire as demand outstrips supply.
With the labor market remaining so tight, the Federal Reserve has felt confident in raising its interest rates without inflicting too much damage on the economy as it seeks to tame inflation. On Wednesday, the central bank increased its policy rate by another 25 basis points, bringing it to 5.00%-5.25%, the highest level since 2007.
Glassdoor Chief Economist Aaron Terrazas expects that job gains will moderate to 187K-202K in April, which would still total 4.1M jobs gained since April 2022, "on par with historic years of job gains over the long arc of U.S. economic history such as 1941, 1945, 1951, 1978 and 1984 (the exaggerated pandemic rebound in 2022 set aside)."
The unemployment rate is expected to tick up to 3.6% from 3.5% reported in March. That will depend on how many people are lured into the job market from the sidelines. In March, the labor force participation rate unexpectedly increased to 62.6% from 62.5%.
Any uptick in the participation rate "would likely be welcome, as it would suggest more workers competing for openings, which could help tame wage-driven inflation," wrote Charles Schwab Senior Trading Strategist Alex Coffey in a commentary.
Recent jobless claims data "suggest that layoffs didn't necessarily accelerate from March to April, but the number of recently laid off workers finding reemployment quickly likely dipped," Glassdoor's Terrazas said. As a result, he expects in increase in the unemployment rate, "potentially as high as 3.8%."
Wage growth will also be closely watched. Average hourly earnings are expected to rise 0.3% M/M in April, according to the conesensus, unchange from March. On a Y/Y basis, that comes to a 4.2% increase, also the same as in the prior month. Terrazas, though, expects wage growth to slow to 4.0% Y/Y. "Earnings growth has trended downward in recent months, despite a small uptick in March," he said.
Fed Chair Jerome Powell said Wednesday there are signs that supply and demand in the labor market are starting to come into better balance. Still, "the labor market remains very tight," he said.
The Fed chief also routinely emphasizes that the central bankers don't apply too much weight to any one month's report as the nonfarm payrolls report can vary widely month-to-month.
The ADP jobs report, which hasn't been a good predictor of the Labor Department's Employment Situation report, showed a resurgence in hiring in April, estimating that 296K jobs were added, up from 142K in March. However, on the bright side, the report showed pay growth significantly slowed.
No doubt the Fed policymakers will parse the report for any signs reaccelerating wage growth or renewed strength in hiring. "If there is one prime focus of the Fed's inflation fears, it is the strong labor market," wrote SA contributor Harry Mamaysky.