This was a generally solid jobs report, with the economy adding 253,000 jobs in April. However, there were sharp downward revisions to both the February and March jobs numbers, of 78,000 and 71,000, respectively. Taken together, the April figure is just 104,000 higher than the number previously reported for March.
The household survey also showed a very positive picture, with the overall unemployment rate edging down to 3.4 percent, a half-century low. The unemployment rate for Black workers fell to 4.7 percent, a new record low. The unemployment rate for Black men over age 20 also hit a record low of 4.5 percent. The previous low, before this recovery, for overall Black unemployment was 5.3 percent and for Black men it was 5.1 percent. The unemployment rate for Black teens fell to 12.9 percent, tying the record low hit in September.
Falling Hours Partially Offset Rising Employment
The average workweek was unchanged from March, but it is down from January and February. As a result, the index of aggregate hours has actually fallen at an annual rate of 0.7 percent since January. The January data were likely anomalous, but the index of aggregate hours has risen at less than a 0.9 percent annual rate since October; this is certainly a sustainable pace in the growth of labor demand.
Wage Growth Accelerates in April
There was a big jump in the average hourly earnings in April, which brought the annualized rate of growth over the last three months to 4.2 percent. This is still considerably slower than the 6.4 percent rate seen at the start of 2022, but likely somewhat faster than is consistent with the Fed’s 2.0 percent. This is somewhat faster growth than had been reported in March, but the prior months’ data has been revised upward.
It is worth noting that the wage growth being reported in the Average Hourly Earning (AHE) series is somewhat slower than the 4.8 percent rate reported in the Employment Cost Index. This gap could be the result of error in the data, but, if it is real, it would imply that the change in composition is reducing average wage growth. (The gap is still there if we do an apples to apples comparison looking at ECI for private sector wages.) That would mean we are seeing less employment in higher paying industries and occupations, and more employment in lower paying ones.
If that is the case and this shift is persisting, as opposed to being a peculiar development associated with reopening from the pandemic, as was the case in 2021, we would likely be more interested in the AHE data. This would indicate the increase in average hourly wages in the economy as a whole. Insofar as workers are moving into lower paying positions, these are presumably also lower productivity positions. If we are trying to determine the impact of wage growth on inflation, we want to see how wages increase relative to productivity. Since the latter is affected by changes in composition, we want a wage measure that is also affected by changes in composition.
Share of Unemployment Due to Voluntary Quits Fall Again
The share of unemployment due to voluntary quits falls to 13.8 percent, well below 2019 peaks and only slightly higher than 13.6 percent average for the year. By this measure, the labor market is still strong, but very much within the normal range. It had peaked at 15.8 percent in September.
Share of Short-Term Unemployed Falls Sharply
After rising in February and March, the share of the unemployed who have been out of work less than five weeks fell sharply in April, from 38.9 percent to 33.2 percent. While having more long-term unemployed would ordinarily be bad news, if we are seeing a recession coming on, there has to be an increase in short-term unemployment before there can be an increase in long-term unemployment. We are not seeing any evidence of this to date.
Wage Growth Continues to be Fastest for Lower Paid Workers
Throughout the recovery, lower paid workers have higher than average wage growth. That trend is continuing. The average hourly wage for production and non-supervisory workers overall, as well as in the low-paying leisure and hospitality sector, increased at a 4.7 percent annual rate over the last three months.
Employment to Population Ratio for Prime Age Workers Rise to Post Pandemic Highs
The overall prime age (25 to 54) employment to population ratio rose by 0.1 pp in April to 80.8 percent, 0.2 pp above pre-pandemic peak. For women, there was a 0.2 pp increase in April to 75.1 percent. This is 0.4 pp above its pre-pandemic peak. The rate for men fell by 0.1 pp to 86.4 percent, 0.4 pp below its pre-pandemic peak.
Professional and Technical Services and Health Care Lead Job Growth
The professional and technical services category added 45,000 jobs in April, while health care added 39,600 jobs. Job growth in restaurants slowed, with the sector adding just 24,800 jobs in the month. Hotels added just 200 jobs. Restaurant employment is still 0.7 percent below its pre-pandemic level. Hotel employment is down by 11.9 percent.
Manufacturing and Construction Add Jobs, After Small Losses in March
Construction (including residential construction) and manufacturing both added jobs in April, after small losses in March. Construction added 15,000 jobs, with residential construction adding 14,200. Manufacturing added 11,000. This is noteworthy, since these sectors are historically the most cyclical. The jobs numbers show no evidence of a recession, although the index of aggregate hours in both sectors is down from January.
Nursing Homes and Child Care Both Add Jobs
As low-paying sectors with difficult work, employment in both nursing homes and child care has lagged in the recovery. Nursing homes added 2,600 jobs in April, while child care facilities added 2,400. Employment in the two sectors is now down by 11.9 and 5.1 percent, respectively.
Labor Market Remains Solid, but Sustainable
The overall picture in the April employment report is incredibly positive. Unemployment is at a half-century low and Black unemployment is the lowest on record. We are still adding jobs, but the demand for labor as measured by the growth rate in hours worked is very much at a sustainable pace.
Wage growth may still be somewhat more rapid than is consistent with the Fed’s 2.0 percent target, but it is only modestly higher than what we saw in 2019, when inflation was at roughly 2.0 percent. If the Fed’s rate hikes don’t due too much damage going forward, and we don’t see serious fallout from the banking crisis, the labor market looks great.
(Source: Gabriel Zucman via The Wall Street Journal)