US jobs growth was stronger than expected in April, providing a reminder of the resilience of the US economy even as the Federal Reserve signalled it was “getting close” to pausing its cycle of interest rate hikes.
The US added 253,000 non-farm jobs last month, according to the Bureau of Labor Statistics, confounding expectations of a slowdown. However, the previous two months’ figures were revised sharply lower.
The unemployment rate was also lower than expected at 3.4 per cent, compared to consensus forecasts of 3.6 per cent. Hourly wage growth strengthened to 0.5 per cent month-on-month. On a year-over-year basis, wages climbed 4.4 per cent.
Wages are a key factor in inflation, particularly in the service sector, so economists and investors were closely monitoring the numbers for signs that higher interest rates are slowing the economy and bringing down inflation.
The US central bank on Wednesday announced its tenth consecutive interest rate rise, lifting its benchmark federal funds rate to a range of 5 to 5.25 per cent. Fed chair Jay Powell said the labour market remains “extraordinarily tight”, but said “there are some signs that supply and demand . . . are coming back into better balance.”
Data released earlier this week had supported Powell’s assessment, showing a sharper than expected drop in job openings to their lowest level since April 2021. Still, separate figures released last week highlighted that wage growth remained relatively strong, and inflationary pressures in several areas are high.
Powell stressed on Wednesday that it would still take some time to bring inflation down towards the Fed’s 2 per cent target, but investors have been betting that the central bank will quickly pivot to cutting rates, with the first coming as soon as July.
Jack Janasiewicz, a portfolio manager at Natixis Investment Managers, said stronger than expected jobs or wage growth data this week “would reinvigorate the idea that the Fed is not done”.
The two-year Treasury yield, which moves with interest rate expectations, jumped to session highs immediately following the publication of the data.
He also highlighted the importance of data on the labour force participation rate, which counts the number of Americans who are employed or actively searching for a job. The rate has crept up in recent months after dropping dramatically early in the coronavirus pandemic, but was unchanged at 62.6 per cent in April.
“There are reasons to believe people are coming back off the sidelines and increasing the supply of labour, which is what the Fed is looking for,” Janasiewicz said. “One of the better paths to a soft landing is increasing the supply of labour rather than seeing people get laid off.”
Asked on Wednesday about the tension between the Fed’s dual mandates of bringing down inflation while maximising employment, Powell said: “Right now, we need to be focusing on bringing inflation down. Fortunately, we’ve been able to do that so far without unemployment going up.”
