The job market in April saw a slight cool down after a torrid growth period in the first quarter of 2024. Payrolls grew by 175,000 positions, lower than the previous month’s gain of 315,000 and economists’ expectations of 240,000. While still positive, the job gains in April were below the average for the past three months at 242,000, similar to the average in 2023. Strong job growth was mainly seen in the health care sector, with retail trade and transportation/warehousing also experiencing growth.
Wage growth slowed in April, with a 2.4% increase annually compared to the 3.3% average over the past two months. Unemployment slightly increased to 3.9%, while the employment rate dipped slightly to 60.2% and the labor force participation rate remained steady at 62.7%. High levels of immigration over the past year have helped add workers to the labor force, enabling strong job growth without too much inflationary pressure. The job vacancy rate also declined to 5.1%, the lowest rate in over three years.
The signs of labor market cooling could be welcomed by the financial markets and the Federal Reserve, especially after higher compensation growth in the first quarter and lower productivity growth. Productivity growth is crucial in determining if higher wages translate into inflation, with a healthy 2.9% growth rate over the past year and unit labor costs rising only 1.8%. If productivity growth in the second quarter returns to the pace of 2023, current wage growth may not be considered inflationary.
While monthly employment data can fluctuate, these signs of a cooling job market might be the first step in avoiding inflation. The Federal Reserve, which has been cautious about cutting interest rates due to early signs of inflation in 2024, could see this report as positive news. If the high productivity growth of 2023 continues, it could further aid in preventing inflation. The impact of these cooling trends on the job market will become clearer in the late spring and summer months.
Overall, the job market in April showed signs of cooling after a period of rapid growth. With lower than expected job gains and a slowdown in wage growth, there are concerns about the potential impact on inflation. However, high levels of immigration have helped add workers to the labor force, and productivity growth remains a critical factor in determining the inflationary impact of wage growth. The Federal Reserve may see this cooling as positive news, while the impact of these trends on the job market will become more apparent in the coming months. If productivity growth remains high, it could help mitigate inflationary pressures in the economy.
