U.S. Job Growth Slowed in April (2024)

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U.S. employers added 175,000 jobs in April.

A less torrid expansion after the 242,000-job average over the prior 12 months isn’t necessarily bad news, given that layoffs have remained low and most sectors appear stable.

“It’s not a bad economy; it’s still a healthy economy,” said Perc Pineda, chief economist at the Plastics Industry Association. “I think it’s part of the cycle. We cannot continue robust growth indefinitely considering the limits of our economy.”

The labor market has defied projections of a considerable slowdown for over a year in the face of a rapid escalation in borrowing costs, a minor banking crisis and two major wars. But economic growth declined markedly in the first quarter, suggesting that the exuberance that characterized the last two years might be settling into a more sustainable rhythm.

Wage growth moderated sharply in April, sinking to 3.9 percent from a year earlier. Swift wage growth in the first quarter, evidenced by a hotter-than-expected Employment Cost Index reading, may have in part reflected raises and minimum-wage increases going into effect in January as well as new union contracts.

The average number of hours worked per week sank, another signal of a decline in labor demand.

The numbers may be welcome news for the Federal Reserve, which has been holding interest rates steady as inflation has remained stubborn. Although the Fed chair, Jerome H. Powell, said this week that he wasn’t targeting lower wage growth, he added that sustained hot pay gains could prevent inflation from being tamed.

Bond yields fell on the new data, indicating a belief that the Fed may cut rates this year after some doubt that it would do so, and the S&P 500 was up sharply in morning trading.

The payroll number is in line with other indicators of slackening conditions that have mounted in recent months: Job openings have fallen substantially from their peak two years ago, and workers are quitting their jobs at lower rates than they were before the pandemic.

“We’ve seen a significant easing in labor demand, and it’s not a surprise that hiring is also slowing down in this economic environment where interest rates are still elevated,” said Lydia Boussour, a senior economist at the consulting firm EY-Parthenon. “We are also seeing cost fatigue from consumers and businesses, which is putting downward pressure on private sector activity.”

Employment growth has been narrowing to a few industries, and that trend continued in April, with health care accounting for a third of the growth.

Leisure and hospitality employment was essentially flat, arresting what had been fairly swift growth as the industry approaches its prepandemic staffing levels.

Lulls in interest-rate-sensitive sectors like technology and manufacturing have been offset by unabated growth in industries like health care, which is powered by aging demographics, and state and local government, which has been catching up after losing workers to better offers during the pandemic.

Federal funding has supported construction work on large infrastructure projects and private investment in clean energy development, as well as subsidies for industries like child care that continue to filter through the economy.

“Depending on where you land, it’s a question of how many of us can end up working for the government in some form or fashion,” said Belinda Román, an associate professor of economics at St. Mary’s University in San Antonio.

As wages have risen — outpacing inflation on average for nearly a year — more people have started looking for jobs, allowing employers to fill positions more quickly. The increased flow of both legal and undocumented immigrants added about 80,000 workers to the labor supply each month last year, according to calculations by Goldman Sachs, and will add another 50,000 per month this year.

And beyond public spending, much of the enduring strength stems from purchases by households, which have been burning through bank balances built during the pandemic. As savings rates decline and delinquency rates on consumer loans rise, that rocket fuel is likely to run dry, leaving an economy that’s still fundamentally sound.

“We are still forecasting what we’d call a modest slowdown, but we’ve got the picture improving again,” said Stephen Brown, deputy chief North America economist for Capital Economics. “For the average worker, it’s not going to feel like a slowdown.”

Men in the same age bracket fell back to 89.1 percent, slightly off their prepandemic participation rate.

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The Fed gets evidence that the job market is cooling, including slower wage gains.

That moderation came as job gains slowed to 175,000 during the month, the unemployment rate ticked up slightly and average weekly hours nudged down. The overall picture was one of a labor market that remains solid but is gradually slowing — exactly what officials at the Fed have been looking for.

Central bankers generally embrace a strong job market: One of their two mandates from Congress is to foster maximum employment. But when inflation is rapid, as it has been since 2021, officials worry that a hot labor market could help to keep price gains elevated. If employers are competing for workers and paying more, they are likely to also try to charge more, the theory goes. And workers who are earning slightly bigger paychecks may have the wherewithal to pay more without pulling back.

“The more jobs reports you get like this,” then “the more confident we can be that the economy is not overheating,” Austan Goolsbee, the president of the Federal Reserve Bank of Chicago, said in a Bloomberg Television interview. Mr. Goolsbee does not vote on monetary policy this year.

At the Fed’s policy meeting this week, officials kept interest rates at 5.3 percent, the highest level in more than two decades. The central bank started 2024 expecting to cut rates several times, but those plans have been delayed by surprisingly stubborn inflation.

Investors now expect two rate cuts before the end of the year. Investors have generally lowered the odds of rate cuts over the past few months, but they saw a slightly bigger chance that the Fed will cut rates substantially following Friday’s employment report. Stock indexes picked up after the report, as investors welcomed the more moderate data.

While inflation is the main thing determining when and how much borrowing costs can come down, Jerome H. Powell, the chair of the Federal Reserve, made it clear this week that central bankers are also watching what happens with hiring and pay.

Mr. Powell emphasized repeatedly that the Fed did not specifically target wage growth when setting policy, but he also suggested that pay gains might need to slow further for inflation to come down sufficiently and in a lasting way — which means that Friday’s numbers could be a welcome development.

“We don’t target wages; we target price inflation,” he said. When it comes to cooling the economy, he said, “part of that will probably be having wage increases move down incrementally toward levels that are more sustainable.”

Mr. Powell laid out several possibilities for what could come next with rates, and the job market is a factor in some scenarios.

A combination of persistent inflation and continuing strength in the labor market could prompt the Fed to leave rates unchanged for longer, he said. But if inflation begins to cool again, that would pave the way for rate cuts, Mr. Powell said. So, too, could evidence that the job market is cooling unexpectedly.

Friday’s small tick up in unemployment was probably not enough to meet that standard. Mr. Powell suggested this week that it would take more than a small jump in unemployment for the Fed to feel that the job market was struggling enough to merit lower rates.

“It would have to be meaningful and get our attention and lead us to think that the labor market was really significantly weakening for us to want to react to it,” he said, adding that an increase of a couple of tenths of a percentage point in the unemployment rate would probably not meet that standard. “It would be a broader thing,” he said.

Michelle Bowman, a Fed governor who tends to favor higher rates more than her colleagues, emphasized after the report that the job market was still strong.

“Although we had seen signs of the labor market coming into better balance, recent employment reports show a continued tight labor market,” Ms. Bowman said, noting that the unemployment remained below 4 percent and that “the number of job openings relative to unemployed workers is still above its prepandemic level.”

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One surprise: The leisure and hospitality sector, which has helped lead the way on job growth in recent months, added only 5,000 jobs in April.

Investors are now back to betting on two quarter-point cuts to interest rates this year, based on prices in futures markets. At the start of the week, they were betting on just one.

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To be sure, Republicans are almost certain to attack Biden for the slowdown in monthly job creation, as they have in the past when month-to-month numbers have dipped.

The index shot higher after the numbers were released and is now more than 1 percent higher for the day.

Futures on the S&P 500, which allow investors to bet on the market before the official start of trading, nudged higher ahead of the fresh jobs numbers being released.

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