The US job market has been on an extraordinary run. The unprecedented strength of the labor market has surprised many, prompting one of our analysts to remark, “We’re witnessing some of the most favorable conditions for workers in recent history.”
Economists anticipate that April’s jobs report, due Friday, will continue to show positive trends, although the pace of hiring may be easing slightly from the first quarter’s breakneck speed. The longer interest rates remain elevated, the more noticeable their impact on hiring is likely to become. As one analyst put it, “High rates act like a brake pedal on the economy; sustained high rates could gradually lead to a less robust labor market.”
Since the start of 2024, the US economy has averaged an impressive 276,000 new jobs each month. This surpasses both 2023’s average and pre-pandemic levels. While some moderation is expected, with forecasts for April suggesting roughly 232,500 jobs were added, economists anticipate the unemployment rate to remain steady at 3.8%.
If these projections hold, it would mark a significant milestone – 40 consecutive months of positive job growth, one of the longest expansions on record. The unemployment rate would also extend its remarkable run below 4%, an achievement not seen since the late 1960s.
Factors Fueling the Labor Market
Several underlying factors contribute to the economy’s job-generating strength. One of our analysts highlighted a significant contributor: “Solid labor force participation, particularly amongst prime working-age women, signals that the current expansion still boasts reserves of untapped workers.”
Additionally, the US has experienced a resurgence in immigration. In March, the number of employed foreign-born workers reached a record high, a positive sign for workforce expansion. As immigrant workers often bring sought-after skills, analysts see this as a potential boost to productivity— the crucial ingredient for sustainable, non-inflationary growth.
While signs of productivity growth are present, economists, including Federal Reserve Chair Jerome Powell, are closely monitoring data to determine the true extent of productivity gains across the economy. This analysis is crucial, as substantial productivity gains would support continued job market strength without fueling inflation.
Recent data from the Bureau of Labor statistics painted a mixed picture of productivity, with some areas surpassing expectations while others showed signs of slowing.
Layoffs remain an area where data brings positive news. One analyst noted, “Job security appears high. Layoffs and weekly unemployment claims data point towards a market with historically low churn.” April’s Challenger, Gray & Christmas report on planned job cuts backs up this sentiment, showing significantly muted layoff activity this year. However, some analysts caution that rising labor costs could eventually force employers to streamline operations more aggressively.
Balancing Growth and Inflation
The hot labor market, while encouraging, presents a challenge for the Federal Reserve’s inflation fight. Chairman Powell acknowledged the strong demand for workers while indicating that signs of a cooldown are emerging. This subtle shift towards a slightly less overheated market is in line with the Federal Reserve’s objectives.
One analyst pointed out that “Openings are coming down, hiring has normalized from its peak, and fewer people are voluntarily leaving jobs. This suggests a welcome rebalancing of the labor market is happening organically, not just due to interest rate increases.”
Friday’s jobs report and particularly its wage data will be a major focus. Economists will carefully parse through whether pay growth is starting its descent towards levels that can co-exist with the Federal Reserve’s inflation targets.
The Bottom Line
While uncertainties remain about the labor market’s future trajectory, most experts anticipate a sustained period of job growth. The strength of the market has been a bright spot in an otherwise turbulent economic landscape.
