Even as some gauges of the strength of the economy have disappointed, job market conditions remain a very bright spot. That was the case again last month.
Job creation surged in April as the economy added 263,000 new jobs, well above expectations for 190,000. Revisions to the preceding two months added another 16,000.
The unemployment rate fell to 3.6%, the lowest jobless rate in the U.S. since 1969. The ranks of the unemployed have declined to about 5.8 million individuals – a very low number compared to not only the overall labor force, but also relative to the estimated 7.1 million job openings across the country.
Average hourly earnings rose by 0.2% for the month and held steady at 3.2% over the past year. While higher employment costs pose a risk of dampening business activity or pushing headline inflation unexpectedly higher, wage growth has accelerated much more gradually versus previous cycles. That risk has been also mitigated in recent quarters by the notable improvement in worker productivity, which surged by 3.6% in the first quarter.
Layoffs have edged higher in recent weeks, but the rebound in job creation in the past two months provides some reassurance for those concerned about a slowdown. With back-to-back solid increases in March and April, the exceptionally soft February payroll report appears more likely to have been a counterbalance to the outstanding January number than an concerning sign of a protracted slowdown in job creation.
One might expect that the exceptionally low jobless rate and continued strength in labor market conditions would be more concerning to the Fed at this stage of the cycle. The fact that wage growth continues to increase at a measured pace and has been accompanied by surprisingly strong productivity gains in the past year has helped to alleviate the risk. More directly, the fact that inflation expectations remain in check and actual inflation is running below the Fed’s target have put policymakers in a position where further near-term rate hikes appear unnecessary.
The bottom line is effectively unchanged. The economy has slowed, but the degree of slowdown is not concerning. Job creation remains solid, and should provide continued support for consumer spending sufficient to keep the economy on a solid growth path.
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