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The American economy likely delivered another solid hiring gain in April, showing continuing durability in the face of the highest interest rates in two decades.
The Labor Department is expected to report Friday that employers added a healthy 233,000 jobs last month, down from a sizzling 303,000 in March but still a decidedly healthy total, according to a survey of forecasters by the data firm FactSet.
The unemployment rate is forecast to stay at 3.8%. That would make it the 27th straight month with a jobless rate below 4% — the longest such streak since the 1960s.
The state of the economy is weighing on voters’ minds as the November presidential campaign intensifies. Despite the strength of the job market, Americans remain generally exasperated by high prices, and many of them assign blame to President Joe Biden.
Yet America’s job market has repeatedly proved more robust than almost anyone had predicted. When the Federal Reserve began aggressively raising rates two years ago to fight a punishing inflation surge, most economists expected the resulting jump in borrowing costs to cause a recession and drive unemployment to painfully high levels.
The Fed raised its benchmark rate 11 times from March 2022 to July 2023, taking it to the highest level since 2001. Inflation did steadily cool as it was supposed to — from a year-over-year peak of 9.1% in June 2022 to 3.5% in March.
Yet the resilient strength of the job market and the overall economy, fueled by steady consumer spending, has kept inflation persistently above the Fed’s 2% target. As a result, the Fed is delaying any consideration of interest rate cuts until it gains more confidence that inflation is steadily slowing toward its target.
So far this year, monthly job growth is averaging 276,000, up from an already solid 251,000 last year.
“If you look at the last couple of months, it has been a safe bet to take the optimistic side,’’ said Aaron Terrazas, chief economist at the employment website Glassdoor.
That said, the job market has been showing some signs of eventually slowing. This week, for example, the government reported that job openings fell in March to 8.5 million, the fewest in more than three years. Yet that is still a vast number of vacancies: Before 2021, monthly job openings had never topped 8 million, a threshold they have now exceeded every month since March 2021.
The number of Americans quitting their jobs — a figure that generally reflects confidence in finding a better position elsewhere — fell in March to its lowest level since January 2021.
A more stable workforce, Terrazas said, is helping many businesses run more efficiently.
“When firms have high numbers of workers quitting,” he said, “that takes up time to find and train new workers. It’s incredibly destructive at the company level.”
Now, “there are finally people in seat who know what they’re doing, know the processes, know the systems. You don’t need to waste a lot of resources on training.”
Economists have noted that hiring has recently been concentrated in three employment sectors: healthcare and social assistance; leisure and hospitality (largely hotels, restaurants and bars); and government. Those three categories accounted for nearly 70% of job growth in March.
More concerningly, the progress against inflation has stalled, raising doubts about the likely timetable for Fed rate cuts, which would, over time, reduce the cost of mortgages, auto loans and other consumer and business borrowing. Most economists envision no rate cuts before fall at the earliest.
On a month-over-month basis, consumer inflation hasn’t declined since October. The 3.5% year-over-year inflation rate for March was still running well above the Fed’s 2% target.
The central bank’s inflation fighters will be watching Friday’s jobs report for any signs that the inflation picture might be shifting. From the Fed’s perspective, Terrazas said, “the best outcome we can hope for Friday is slower but still solid payroll growth, steady employment and, most importantly, slowing wage pressure.”
Many economists say that year-over-year increases in hourly pay must slow to about 3.5% to be consistent with the Fed’s inflation goals. That probably didn’t happen last month: The forecasters surveyed by FactSet project that hourly wages rose 4% from a year earlier, just below the 4.1% year-over-year rise in March.
