After experiencing a significant amount of growth in the first quarter of 2024, the job market showed signs of cooling in April. Payrolls only increased by 175,000 positions, lower than economists’ expectations and last month’s gain of 315,000. Sectors such as health care, retail trade, and transportation/warehousing saw job growth, but other sectors like leisure/hospitality and government grew more slowly. Industries sensitive to interest rates, such as construction and manufacturing, also experienced low job growth.
Wage growth in April slowed to 2.4% on an annualized basis, compared to an average of 3.3% over the past two months. Unemployment slightly increased to 3.9%, and the rate of employment in the population dipped to 60.2%. However, the labor force participation rate remained steady at 62.7%. High levels of immigration in the past year have helped add workers to the labor force, contributing to strong job growth without significant inflationary pressure.
Labor market measures indicate cooling, with the job vacancy rate declining to 5.1%, the lowest rate in over 3 years. This shift may be positive news for the financial markets and the Federal Reserve, as compensation growth slowed from about 4.7% on an annualized basis in the first quarter of 2024. Productivity growth in the first quarter was also low at just 0.3%, but over the past 12 months, productivity growth has been a healthy 2.9%. Lower productivity growth is crucial in determining if higher wages lead to inflation.
While it is important not to rely too heavily on data from a single month, the signs of cooling in the job market may be indicative of a trend that could continue throughout the late spring and summer months. The Federal Reserve, which has been cautious about cutting interest rates due to inflation concerns, may find relief in the cooling numbers, which could alleviate some inflationary pressure. The economy’s ability to maintain the high productivity growth seen in 2023 will also play a key role in determining whether current wage growth leads to inflation or not. Time will ultimately determine the sustainability of these signs of a cooling job market.
