By Lucia Mutikani
WASHINGTON (Reuters) – U.S. employers probably hired the fewest workers in almost two and a half years in April, as the cumulative and lagged effects of rising interest rates begin to affect a wide swath of the economy. .
However, the Labor Department’s jobs report, due to be released on Friday, will provide no consolation to Federal Reserve policymakers battling high inflation as wage growth is expected to have held up. pretty strong last month. The unemployment rate is forecast to have risen to 3.6%, still historically low.
On Wednesday, the Federal Reserve raised its benchmark overnight rate another 25 basis points to between 5.00% and 5.25%, signaling it may pause the policy-tightening campaign. US central bank’s fastest monetary policy since the 1980s, albeit with a tightening bias. The Fed has raised its key interest rate by 500 basis points since March 2022.
“The job market is giving way slowly, but it’s not breaking,” said Sam Bullard, a senior economist at Wells Fargo in Charlotte, North Carolina. “There is continued resistance in the labor market right now, but the trend is that you continue to see a slowdown in the pace of momentum.”
The establishment survey is likely to show employment rose by 180,000 positions last month, according to a Reuters poll of economists. It would be the smallest increase since December 2020 and would come after the increase of 236,000 in March.
Although it would also mark the third consecutive month of slowdown in job gains, payrolls would be well above the 70,000-100,000 monthly increase needed to keep pace with the growth of the working-age population.
However, some economists believe the labor market is overstating the health of the economy, pointing to the divergence between consumer spending and job growth, as well as the continuing decline in worker productivity. Consumer spending stagnated in February and March. Productivity has declined year-on-year for five consecutive quarters, the longest period since the government began tracking the series in 1948.
“This is very strange in a year of growth, and I think it says that companies are hoarding workers,” said Milton Ezrati, chief economist at Vested in New York. “Managers remember what happened in 2021 and don’t want to be caught off guard.”
Economists also noted that job growth was becoming more concentrated in the leisure and hospitality industry, as well as in state and local administrations, sectors where employment remains below pre-pandemic levels.
Recession risks are rising due to high borrowing costs and tightening credit conditions in the face of financial market stress, so the hiring landscape could change quickly.
“A key question is how far the layoffs and credit crunch will spill over into the broader economy, and that depends mostly on how consumer spending holds up,” said Kevin Cummins, chief economist at NatWest in Stamford, Connecticut. “If consumer outlays slow sharply, then the overall impact of the banking sector turmoil/credit crunch on employment is likely to be quite significant,” he added.
For now, the general consensus is that the economy will continue to create jobs at least until the fourth quarter.
The service sector is likely to have been responsible for most of the job gains forecast for April. Further job losses are expected in the goods production sector, mainly reflecting declines in construction and manufacturing.
Construction was one of the first victims of the aggressive tightening of monetary policy, due to the impact of the rise in rates on housing construction.
MODERATION OF SALARY INCREASES
Average hourly wages are forecast to rise 0.3% in April, the same as in March. This would keep the year-on-year increase in wages at 4.2% in April.
But other measures, such as the job cost index and the Atlanta Fed’s wage tracker, are showing momentum. Even at the current rate, wage growth in the jobs report is still too strong to be consistent with the Fed’s 2% inflation target.
“There is some risk that the growth rate in this series will tighten this spring to close the gap with other wage series,” said Lou Crandall, chief economist at Wrightson ICAP.
The median work week is forecast to remain at 34.4 hours. Some companies are likely cutting hours rather than cutting jobs.
The household survey data from which the unemployment rate is calculated is likely to be discrete. Domestic employment is expected to moderate after the rise in March.
The activity rate, or the proportion of working-age Americans who have or are looking for a job, is expected to remain at 62.6%. With the proportion of people aged 25-54 at pre-pandemic levels, the scope for increasing the participation rate is limited.
“The pickup in labor supply has been encouraging as it can act as a safety valve in the face of elevated wage pressures,” said Lydia Boussour, chief economist at EY-Parthenon in New York. “However, labor force participation remains constrained by demographics and should come under pressure in the coming quarters as conditions worsen and employment opportunities dwindle.”
(Reporting by Lucia Mutikani; Editing by Andrea Ricci, Spanish editing by José Muñoz)
