The US economy added just 175,000 jobs last month and unemployment rose to 3.9%

The US economy added just 175,000 jobs last month and unemployment rose to 3.9%

US job growth slowed sharply last month, with just 175,000 positions added in April, according to Bureau of Labor Statistics data released Friday.

The slower-than-expected rise – April’s tally was the lowest since October last year – came as the Federal Reserve has sought to cool demand to tame high inflation.

Economists had expected the labor market to see a gradual slowdown due to pressure from high interest rates.

Markets jumped on the news, with Dow futures up 505 points, or 1.3%; S&P 500 futures rose 1.1% and Nasdaq futures rose 1.5%.

While April’s job numbers were cooler than the revised 315,000 increase in March, they were in line with what was seen before the pandemic and a neutral rate of job growth to keep pace with population growth. In the decade before the pandemic (which was also the nation’s longest period of job expansion), average monthly job gains were 183,000.

“From a bigger point of view, you’re looking at a labor market that’s still pretty strong, pretty tight,” Michael Pugliese, senior economist with Wells Fargo, told CNN in an interview Friday. “This is a far, far cry from 2020 or 2009 or the weak labor market we’ve seen over the last 15 or so years.”

“But it’s clear at this point that this is not as tight a labor market as we had at the peak in late-’21, most of 2022.”

The unemployment rate rose higher to 3.9%, according to the Bureau of Labor Statistics. April marked the 27th consecutive month that the unemployment rate has been held below 4%, matching the streak last seen in the late 1960s.

Economists had expected 235,000 jobs to be added last month and for the unemployment rate to remain steady at 3.8%, according to the FactSet consensus estimate.

Almost half (about 87,000) of April’s job gains were in the health care and social assistance sectors, which have been the main drivers of job gains. The remainder of employment growth was fairly broad-based across other industries, with some of the larger gains recorded in transportation and warehousing and retail trade.

‘Right-sized numbers’
At the start of 2024, it looks as if economic acceleration is at play. Inflation data continued to rise, spending remained strong, wage growth did not slow as expected, and job gains surpassed what was seen in 2023.

But there are signs that a calm period is ahead. For the labor market, in particular, wage growth is moderating and earnings data show that fewer jobs are available, hiring activity is slowing and people are not quitting as much.

“I don’t think this [175,000 net profit] is a doom and gloom figure; I think it’s a right-sized number,” Jane Oates, a former Labor Department official who serves as senior policy adviser for the employment education nonprofit WorkingNation, told CNN.

The question in the coming months will be whether this creates a new normal for the labor market, he added.

Following Friday’s report, which also included a revision that showed 22,000 fewer estimated job gains in February and March combined, the rate of job growth is now slightly below what was seen last year, BLS data showed.

Through April, US employers had added an average of 245,500 jobs per month, compared to an average of 251,000 per month in 2023.

The labor force participation rate remained stable at 62.7%; however, Friday’s report showed that prime working-age participation, especially among women, increased.

The labor force participation rate for women aged 25 to 54 increased by 0.3 percentage points to reach an all-time high of 78%.

Also, the unemployment rate for Black workers fell back to 5.6% (the rate seen in February) after suddenly jumping to 6.4% in March. Economists at the time warned that the increase was “likely more signal than noise,” given the volatility in the household survey component of the jobs report; however, it is an important data point to note.

What this means for the Fed — and rates
Wage growth also slowed significantly: Average hourly earnings rose 0.2% from March and 3.9% over the past year. Annual wage gains, as measured by the BLS, were at their lowest level since May 2021.

Fed officials are closely monitoring the trajectory of wage increases, as there are concerns that accelerated compensation growth may serve as an inflationary pressure.

Fed Chairman Jerome Powell said earlier this week that the central bank will not begin to loosen its tight monetary policy until there is a clear slowdown in inflation (which has been hot this first quarter) or a sudden and unexpected weakness in the labor market.

Although job gains were lower in April, Friday’s report did not trigger the latter, economists and analysts said.

“For those looking for a rate cut sooner rather than later, this slowdown in wage growth is good news, and the weaker wage growth numbers make it even better news,” Olu Sonola, Fitch Rating’s head of US economic research, said in a statement.

“However, one month does not make a trend, so the Fed will likely need to see several months of this type of easing coupled with better inflation numbers to put rate cuts back in play sooner rather than later.”

Wells Fargo’s Pugliese said that while employment data is important to the Fed, “inflation data is really what drives the bus here.”

“As long as job growth stays north of 100,000 and below 350,000, a nice big range where you’re not going to fall off a cliff or run at a very, very hot rate, I think the real big swing factor is what happens in the [inflation ],” he said.

The next report for the Consumer Price Index, the most widely used gauge of inflation, will be released on May 15.