The labor market has long been a bright spot in the current expansion, even when growth struggled to break above a 2% trend pace. With the economy now picking up additional steam, job market conditions remain broadly positive.
The unemployment rate dipped more than expected to 3.9% in April, the first time that unemployment has fallen below the 4% threshold since December 2000 – over 17 years ago.
Prior to April, unemployment had been stuck at 4.1% for six consecutive months, despite adding over nearly 1.3 million jobs over that same period.
Job creation slowed moderately in April, with the economy still adding a solid 164,000 to payrolls. That result fell short of expectations for 190,000 – 200,000, but upward revisions to the preceding few months added a net 30,000, bringing the total increase into the expected range.
By any number of measures, the labor economy still appears to be on a constructive footing, with job creation proceeding at a healthy pace, layoffs at extraordinarily low levels, and joblessness at its lowest point in a generation.
If there was a point of disappointment, it was that average hourly wages increased by 2.6%, fractionally below expectations. Still, it’s worth noting that this is only one gauge of wage growth. Alternatively, the Employment Cost Index is picking up steam at a faster pace, recently reaching 3.1%.
It may be surprising that wage pressures are not more pronounced with joblessness now below 4%. It stands to reason that wage growth will continue to accelerate as the untapped portion of the labor pool continues to evaporate. Still, the potential for labor force participation to increase as workers re-enter the workforce provides some additional supply that isn’t necessarily apparent in the unemployment rate.
The Fed’s decision to stand pat earlier this week did nothing to suggest that the central bank’s pattern of gradually raising rates has been altered. With key measures of inflation now at or above the Fed’s 2% target rate, one critical support for continued tightening is in place. The continued decline in the jobless rate and other signs of strong labor market conditions, particularly as fiscal stimulus hits an economy already growing at a solid clip, provides the second key support that the Fed needs to continue to raise rates.
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