Key takeaways
The U.S. job market expanded in April for the 40th consecutive month, but at a slower pace.
175,000 new jobs were added in April, the lowest monthly jobs number so far in 2024.
The unemployment rate remains below 4% and wage gains are still above average, but the pace of wage growth is slowing.
With summer approaching, signs have emerged of a possible U.S. labor market slowdown. Job openings have modestly declined in recent months.1 The April Employment Situation Summary from the U.S. Bureau of Labor Statistics shows payroll employment growth slowed from previous months. April saw the creation of 175,000 new jobs, modestly below expectations, and a possible sign of slower economic growth.2 Nevertheless, job layoff activity appears stable and worker’s wage gains remain solid.
April also represented the 40th consecutive month of payroll employment growth. The unemployment rate rose slightly, to 3.9%, but unemployment has remained below 4% for 28 consecutive months, the longest month-to-month stretch of below 4% unemployment since 1967 to 1970.2
Signs of what might be a cooling job market came on the heels of the first quarter Gross Domestic Product (GDP) release showing the economy growing at a modest 1.6% annualized rate.3 Recent data appears to indicate tapering economic growth, which could have an impact on Federal Reserve (Fed) monetary policy. Investors continue to anticipate the Fed lowering the federal funds target rate it controls later this year, which would reverse monetary policy pursued in 2022 and 2023. During that time, the Fed raised rates from near 0% to more than 5%. The Fed has held rates steady since July 2023, and recently indicated that rate cuts may not be imminent, though further rate hikes appear unlikely.
How might the Fed react to the most recent trends as it determines future interest rate moves? Does today’s job market provide any guidance for investors as they set expectations going forward?
In the first four months of 2024, non-farm payrolls grew by an average of 245,500 jobs per month, slightly below 2023’s average. However, April’s 175,000 new jobs represented 2024’s slowest month for job creation.4
The most notable April job gains occurred in health care, social assistance, transportation and warehousing, and retail.1
April’s 3.9% unemployment rate was consistent with recent months’ readings, when unemployment ranged from 3.7% to 3.9%.2 Unemployment is only marginally higher than the most recent low of 3.4% reached in April 2023. There continues to be an unusual imbalance between the number of job openings and the availability of individuals seeking employment. At the end of March 2024, according to the U.S. Bureau of Labor Statistics, there were 8.5 million job openings in the U.S., compared to 6.5 million unemployed persons. That means there are still approximately 1.3 jobs for every unemployed person seeking work.5 The number of job openings declined modestly in recent months. “It’s slowly headed in the right direction,” says Rob Haworth, senior investment strategy director at U.S. Bank Wealth Management. “Still, the imbalance favors workers, and as a result the fact that we have more job openings than available workers could keep wage pressures elevated.”
“Improving labor participation is one way to address the tightness in the labor market that’s propping up wage gains.”
Matt Schoeppner, senior economist at U.S. Bank
One measure economists watch to forecast potential changes in labor market trends is the weekly new jobless claims report. In the most recent report, issued May 2, 2024, initial jobless claims stood at 208,000. It has lingered in the low 200,000 level for most of 2024.6 “It shows companies are generally hanging onto their employees,” says Haworth. “At the same time, recent reports show people aren’t leaving jobs at the rate they once were. That signals a slightly softer labor market.”
The labor force participation rate, representing the percentage of the population currently in the workforce, held at 62.7% in April, matching March’s number.2 Labor force participation is considered a key barometer of the broader economy’s health. The labor force participation rate was higher, at 62.8%, between August and November 2023.4 “Improving labor participation is one way to address tightness in the labor market that’s propping up wage gains,” says Matt Schoeppner, a senior economist at U.S. Bank.
Signs of slower economic growth have not translated into reduced inflation. The most recent reading of the Consumer Price Index showed inflation at 3.5% for the 12 months ending in March 2024. Inflation has lingered between 3% and 3.7% since June 2023.7 “The Fed is looking for incremental, month-to-month declines in living costs,” says Haworth. “Even though Fed officials don’t indicate an expectation of inflation reaccelerating, they also don’t appear to be convinced that rate cuts should occur just yet.”
He notes that the Fed is closely monitoring average monthly wage growth, which dropped below 4% for the 12-month period ending in April 2024, to 3.9%. “At that level, it might be close to a tipping point where the markets will begin to again anticipate Fed rate cuts,” says Haworth. “But the Fed may be looking for a more sustained trend.”
Fed Chair Jerome Powell, in early May, said that as a result of recent inflation and labor market trends, “the risks to achieving our employment and inflation goals have moved toward better balance. The economic outlook is uncertain, however, and we remain highly attentive to inflation risks.” Powell indicated the Fed wants to be more confident that inflation is moving in the right direction before it begins cutting the fed funds target rate.8
According to Schoeppner, the job market’s ongoing strength may complicate the Fed's rate cutting plans. A tight labor market offering more competitive wages has played an important role providing consumers the wherewithal to maintain higher spending levels. That heightens the risk that inflation could persist or even trend higher.
Investors continue to closely follow jobs data for signs of a slowdown, which could provide the Fed with the impetus to begin cutting interest rates. Lower rates are considered a way to provide a boost to the economy, which would likely help extend the stock market rally that began in 2023.
Talk with a wealth professional if you have questions about your personal financial circumstances or investment portfolio.
The job market refers to the marketplace where individuals seek work and employers seek workers. The strength of the job market is considered one important measure of the current health of the broader economy. If more jobs are being created and demand for labor is high, it tends to reaffirm the presence of an expanding economy. By contrast, higher unemployment levels and low job growth (or a decline in job growth) indicate a slowing economy.
The unemployment rate, reported monthly by the U.S. Bureau of Labor Statistics, provides significant insight into the health of the nation’s economy. Generally, the lower the unemployment rate, the stronger the economy is likely to be. The unemployment rate is also one of the mostly closely followed indicators. It’s important to note that the unemployment rate reflects people who are out of work but still seeking employment. It does not reflect others who have stopped looking for work or consider themselves no longer in the labor force.
When the unemployment rate moves higher, it indicates potential weakening of the economy. Consumers may consider holding back on purchases if they have concerns that they, themselves, could face unemployment in the near future. If that occurs, it can potentially contribute to further economic weakness. When unemployment is low, it’s a good indicator that the economy is strong and expanding.
The Federal Reserve is focused on fighting inflation with monetary policy intended to slow consumer demand. Does this put the economy at risk of a recession?
With inflation retreating and interest rate cuts likely coming later this year, how should investors position their portfolios to capitalize on potential opportunities, while guarding against risks?
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