The U.S. labor market added 175,000 jobs in April, another solid month of job growth, with more than 60% of private industries adding jobs. The unemployment rate rose from 3.83% to 3.86%, rose slightly to 3.9%, and the labor force participation rate remained stable at 62.7%. To extract stronger signals from monthly data, it is always helpful to average over several months. In the past three months, salaries have increased by 242,000 (see CEA Hiring Dates) X thread (Click here to learn more about the report).
As we’ve discussed in many recent blogs, a sustained strong labor market — the unemployment rate has now been below 4% for 27 consecutive months, the longest period since the 1960s — has led to increased employment and wages. , which helps to strengthen the strong. , continued expansion.
At the same time, as the economy expands, we expect GDP and job growth to slow to a more stable and stable pace than the breakneck pace of growth emerging from the depths of the pandemic recession. Economists can refer to this as “normalization” or, in some cases, “economic cooling.”
In this post, we’ll show you what that means in terms of some of the key variables that matter most to working households. BLUF: Cooling or normalization is necessary and positive. This will iron out some of the kinks left behind during the pandemic period and allow the economy to settle to a more sustainable pace while maintaining robust employment and earnings opportunities. The evidence below shows that although the job market is cooling, it is cooling from unsustainably hot temperatures to a pace consistent with maintaining full employment and a gradual easing of inflation.
Figure 1 illustrates the ongoing realignment of labor demand and labor supply. Just subtract the labor force from the sum of employment and vacancies. Let’s put aside the frictional unemployment that always exists in the job market and create some simple numbers to illustrate the concept. If there are 7 jobs and 3 vacancies, demand equals 10. If the labor force is also equal to 10, the gap disappears and supply and demand match.
The numbers show that after a sharp recovery in 2020, labor demand will soon far outstrip labor supply, and this imbalance could constrain the recovery. But as hiring cooled and labor supply accelerated, the measure began to return to pre-pandemic levels.
Returning to today’s report, an important note about these developments is that the rebalancing of the labor market is not due to a decline in employment rates, but rather a decline in vacancies offset by strong employment (cooling demand without job losses). This means that it was brought about by a combination of Increase in labor force (reflecting increase in supply). One area where this important supply-side trend is particularly evident is in the labor supply of women in their prime years (25-54 years). In April, their LFPR reached 78%, the highest level ever recorded in the late 1940s.
Figure 2 shows that wage growth has slowed, but importantly, it is still easily outpacing inflation and has been rising for more than a year (April inflation data is not yet available). Note that CPI inflation was 3.5% in March). The wage data here pertains to his 80% of non-managerial or blue-collar private sector workers. Over the past year, wages for these low- and middle-wage workers have increased by 4%. Driven by the sharp labor demand-supply pattern shown above, nominal wage growth for middle-wage workers jumped to 7% in early 2022, but gradually declined to 4% in April.
As mentioned earlier, this wage series has been outpacing inflation for the past year or so. This means an increase in real wages each year and an increase in the purchasing power of these workers’ salaries.
The appendix includes figures from recent job openings and turnover surveys that capture other aspects of the cooling labor market. Importantly, there has been a marked decline in retirements since the peak of the coronavirus pandemic. This reflects both the near-end of the post-COVID-19 shift to more favorable jobs and work schedules, and a cooling in labor demand. The demand for air conditioning is also reflected in the decline in adoption rates. In contrast, layoff rates have remained stable, highlighting that the labor market is cooling to a more sustainable pace while maintaining strong employment and wage growth.
We learned at least two things about the U.S. labor market this morning. First, and most importantly, we see that employers continue to hire at a strong pace, leading to both record low unemployment and high women’s LFPR. I did. Second, as the pandemic continues to loom in the rearview mirror, we are learning that some key economic misalignments are being realigned to be consistent with steady, stable, and sustainable growth. It has expanded.
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