Jobs growth exceeded expectations last month, and unemployment fell to the lowest level in decades. But that surprise performance may mean higher interest rates as the Federal Reserve continues in its efforts to limit price rises.
The economy added 253,000 jobs in April, beating both expert predictions and the figures for the previous month. Unemployment clocked in at 3.4%, a level last reached in 1969.
Taken as a whole, the data show an economy that is still going strong, despite the omens of a looming downturn and a tightening credit market. While there are some signs that momentum is starting to slow, the unexpected resilience in the jobs market suggests that employers are still optimistic about their near-term prospects. But that resilience is likely to prompt further action by the Federal Reserve, which has so far been unable to restrain inflation with higher borrowing costs.
Those low unemployment figures allow workers to bargain for higher salaries. Wages grew 4.4% over the previous year, well above the pre-pandemic average.
“The structure of the labor market has changed,” said Joe Brusuelas, chief economist at the accountancy network RSM. “There simply aren’t enough workers to meet demand.”
That high demand is good news for workers, especially those at the bottom of the payscale. Notably, Black unemployment reached a record low of 4.7%.
But these figures will face a chillier reception from the Federal Reserve, which recently hinted at a pause in interest rates after ten consecutive increases. The central bank is worried that higher incomes could bid up prices, feeding into an inflationary spiral.
As wages continue to defy gravity, an eleventh rise may soon be on the table. By raising the cost of borrowing, the Federal Reserve hopes to discourage businesses from further expansion.
“They (the Federal Reserve) have always emphasized the link between jobs and inflation,” explained Christopher Low, chief economist at FHN Financial. “The Fed worries that if they don’t bring those wages down, then they’re not going to see a decline in those price increases.”
Businesses are also feeling the pinch of higher wages. Li Chang sells car parts on Amazon and eBay, along with two part-time employees. He also co-owns a restaurant, which qualified him for a green card a few years ago.
The car parts business made a lot of money during the lockdown, but business has slowed. He mainly hires other immigrants through Facebook and online forums, and it’s hard to find people with the skills he needs.
“It’s okay, but it’s getting less and less,” Li explained. In the past, he has sometimes hired undocumented workers, but even they are becoming expensive.
“It’s getting harder to find people,” Li said. “Now, even if I pay fifteen or eighteen dollars, I still can’t find the right people.”
Today’s report comes against the backdrop of the largest banking crisis since 2008. While economists saw no obvious signs of the crisis in today’s numbers, the effects may later manifest as gradual tightening in the lending market.
But there are some signs of flagging demand. Today’s report included significant downward revisions, indicating that the strong growth of February and March was over-estimated. Moreover, the number of vacancies fell, according to survey data released earlier this week, while the number of layoffs and discharges rose.
There’s little worry of a layoff at Ziggi’s Coffee in Chandler, Arizona. The Colorado-based franchise is seeing more traffic over the past few months, according to shift lead Belle Barmore.
“It’s actually gotten pretty steady recently,” said Barmore, who started working there when the cafe opened a year and a half ago. “It’s picked up during the mornings and during the day.”
Ziggi’s is noticeably busier than it was this time last year, Barmore added, and the shop has expanded its menu of energy drinks and smoothies. Although they are fully staffed for the moment, they will soon need additional hands as the summer months pick up.
Hiring is still brisk, particularly in the services sector, which has still not returned to pre-pandemic levels. Restaurants, hotels, and other leisure businesses continued to add jobs, but at a slower pace than they did earlier this year.
Even construction added jobs, despite expectations that it would be among the first industries to suffer from higher borrowing costs.
That growth could be a sign that businesses expect any upcoming downturn to be modest, according to Dana Peterson, chief economist of the Conference Board. Peterson pointed to survey data that suggest that many CEOs expect to emerge relatively unscathed.
“They think that there’s going to be a recession, but it’s not going to be that bad,” Peterson explained. “You hold onto your workers, because you don’t want to have to rehire them if you let everyone go.”
But even with the asterisks, economists are largely optimistic. “It just doesn’t feel like a recession,” Brusuelas said.