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Contradictory Signals in Labor Reports
Unemployment Claims Still Climbing
US Labor Market Shows Resilience and Strength with Record Job Creation and Rising Wages
Unemployment Rate & Claims
The US labor market presents a complex picture, with contrasting trends and indicators. While the Household Survey by the Bureau of Labor Statistics (BLS) reveals a notable decline in the unemployment rate to a 22-year low of 3.4%, indicating a growing labor force fueled by a tight labor market and rising wages, there are signs of gradual softening. The recent increase in the number of Americans filing new claims for jobless benefits, with initial claims rising by 13,000 to a seasonally adjusted 242,000, suggests a rise in layoffs. Despite these softening signals, the labor market remains tight, posing a complex economic landscape.
April saw the prime-age labor participation rate surge to 83.3%, its highest level since before the Financial Crisis, signifying a remarkable increase in active engagement within the labor market for individuals in their prime working age. Despite certain sectors experiencing layoffs and bankruptcies, notably in commercial real estate and auto dealer-lender chains, the labor market continues to exhibit resilience with ongoing hiring activities. Global layoff announcements, often associated with prominent companies, persist alongside their simultaneous recruitment efforts, leading to a swift reemployment of the affected individuals by other firms.
The US economy added 253,000 non-farm jobs in April, beating expectations of a slowdown. The US labor market has demonstrated resilience and strength, with employers adding 253,000 jobs in April, bringing the total number of payroll jobs to a record 155.7 million. The three-month average of job creation is at the upper end of the range seen before the pandemic, with an average of 222,000 jobs created per month. The household survey, which includes self-employed and contract work in addition to payroll-type jobs, showed that 298,000 jobs were created on average over the past three months through April, pushing the total of all kinds of jobs to a record 161.0 million.
Hourly wage growth strengthened by 0.5% month on month and rose by 4.4% year on year, aligning with the rise in prices. Average hourly earnings for all employees experienced the highest month-to-month increase since last year, with a three-month average growth rate of 0.34%. This month-to-month re-acceleration in wage growth suggests a potential end to the decline in the growth rate and stabilization of wages around 5% year-over-year, deviating from the downward trajectory observed over the past year.
The Bureau of Labor Statistics has released data from the Job Openings and Labor Turnover Survey (JOLTS) for March 2022, revealing that job openings fell again but were still 31% higher than in March 2019. Companies are actively readjusting their job openings to address the imbalances accumulated during the past two years. Although job openings in March remained higher than the pre-pandemic Good Times trend, companies are systematically reducing the excesses. Since October, hiring has remained within a consistent range, and the three-month moving average in March decreased to approximately 6.21 million newly hired workers, aligning with the levels observed in October 2022.
The JOLTS report also highlights that churn in the workforce subsides, and voluntary quits have been on the decline for months. The number of quits is still 10% above 2019 but has been below the Good Times trend line. Professional and business services have a huge number of job openings, having an increase of 38% from the same period in 2019.
The Fed raised its benchmark overnight interest rate by another 25 basis points to the 5.00%-5.25% range on Wednesday, and signaled it may pause further increases, though it kept a hawkish bias. However the downward revisions to the previous two months' data partially offset the headline payrolls increase. The data suggests that the labor market is still tight, raising doubts over whether the Federal Reserve will begin to cut interest rates as soon as investors had expected. The two-year Treasury yield, which moves with interest rate expectations, jumped to session highs immediately following the publication of the data. Traders in the futures market who had been pricing in the possibility of interest rate cuts as soon as July reduced those bets.
Labor Data Mixed Bag
The US labor market presents a complex landscape with indicators showcasing both positive and negative trends. On one hand, the unemployment rate reached a 22-year low of 3.4%, highlighting a strong labor force driven by tight market conditions and rising wages. However, there has been a recent increase in jobless benefit claims, hinting at potential layoffs. Additionally, the prime-age labor participation rate surged to its highest level since before the Financial Crisis. In April, the economy added 253,000 jobs, with wage growth strengthening and job openings remained elevated compared to pre-pandemic levels.
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