Labor Market Trends Are Now the Fed's Friend
Notwithstanding a small uptick in April, the US jobs market is clearly cooling. The central bank needn’t hurry it along with more interest rate increases.
Federal Reserve Chair Jerome Powell can breathe a sigh of relief.
Photographer: Saul Loeb/AFP via Getty Images
Federal Reserve Chair Jerome Powell claimed this week that the US labor market remains “very tight,” and a government report Friday showing that employers added a better-than-forecast 253,000 nonfarm jobs in April appeared to validate that view. But downward revisions to the February and March data suggest a broad cooling trend remains intact. This poses somewhat of a dilemma for policymakers in their effort to get inflation back under control: Continue to raise interest rates and risk pushing the economy into recession or pause and risk allowing inflation to remain elevated. At this moment, the latter is the better option.
Although the gains in April pushed the unemployment rate back down to just 3.4%, near the lowest since the 1960s, some of the under-the-hood numbers - specifically, the underlying trend in private payroll growth — corroborate a clear slowdown that’s well under way. With Friday’s revisions for February and March data, the numbers now show the US added an average of 182,000 private sector jobs in the past three months, the fewest since January 2021. More importantly, the average has returned to the pre-pandemic “normal.” That may not be weak enough for policymakers in inflation-fighting mode, but it’s a stretch to classify it as “tight.”