Hiring numbers once again eclipsed economists’ projections in April, indicating a stubbornly resilient labor market defying high interest rates, elevated inflation, and banking industry turmoil.
The U.S. economy added 253,000 jobs last month, according to data released Friday by the Labor Department. The unemployment rate fell to 3.4%, a target it also hit in January and the lowest rate on record since 1969. Hourly wages were also somewhat stronger than expected, up 4.4% from April 2022.
The data depicts a labor market that, despite showing signs of trouble, remains a bright spot in an economy contending with bank failures, still elevated inflation, high-interest rates, and a possible looming recession.
What the report means for the Federal Reserve’s calculus on whether to raise rates again in June remains unclear, as interest rate hikes depend on a multitude of economic factors, such as an updated Core Price Index report, in addition to the status of the labor market.
“It does appear that the labor market is modestly slowing,” said Joe Brusuelas, chief economist at RSM US LLP. But, he said, job growth in recent months ”reflected underlying resilience in the U.S economy and an absolutely unstoppable labor market.”
Demographically, the report showed particularly good news for Black workers, with the Black unemployment rate hitting a record low of 4.7%, beating last month’s previous record low of 5%.
Jose Segura, general manager at a popular Soho restaurant, says hiring this spring was much easier than at the same time last year, a point he attributes to more applicants genuinely seeking positions, rather than feigning job searches in order to satisfy unemployment insurance requirements. So far in 2023, Segura has hired over 15 employees for a variety of kitchen and customer-facing positions.
“This time last year, it was impossible to hire someone. It was a lot of people making believe they were looking for jobs…half of those, if not more, would not show up to interviews,” he said. “This year was totally different….[there were] a lot more people looking to work.”
Sectors sensitive to the Fed’s interest-rate hikes also fared better than expected. As the housing market has shrunk in response to higher borrowing costs, there’s been an expectation that construction and manufacturing industries would shed jobs, as they did in March. However, today’s report showed that the construction industry added 15,000 jobs, while manufacturing added 11,000 jobs.
Julia Pollak, the chief economist at ZipRecruiter, credits a number of factors for why construction and manufacturing have defied expectations. Thanks to the CHIPS Act, the government has invested billions into manufacturing projects. Additionally, Pollak points to the rising cost of housing as one explanation for an increase in construction jobs: families who cannot afford to buy single-family homes are renting apartments, pushing property developers to invest in large-scale projects such as apartment buildings.
“There’s actually still a remarkably steady stream of work for construction companies despite the huge slowdown in housing activities,” she said.
While the report reflects a strong labor market, it did indicate some warning signs of a possible economic downturn, such as layoffs in the tech and temporary help service industries, as well as a sizable downward revision to the job numbers recorded earlier in the year.
“You’re certainly seeing cracks in the data in terms of some industries letting folks go,” said Dana Peterson, chief economist at the Conference Board. She said temp jobs, in particular, are “usually a leading indicator of what’s going to happen with the labor market going forward.”
The current downsizing of tech and information sectors and the upswing of construction and manufacturing industries can be felt in how staffing agencies are allocating employees.
According to Friddy Hoegner, head of business development and operations at SCOPE recruiting, a staffing firm based in Huntsville, Ala., tech companies were eager to hire in the past few years, but have since pulled back on recruiting. Hoegner says that while the number of employees SCOPE has placed in the last few years has remained steady at an average of 10-20 employees per month, the type of jobs they’re being requested to fill has shifted.
“In 2021 and 2022, we were definitely working with tech firms like Google, Cisco, and other [tech] firms, and it’s definitely moved more back to manufacturing now,” he said. “Other industries we’re working with are still construction and quite a bit of government-related fields.”
The recent turmoil in the banking industry could also hamper small businesses hiring efforts.
“Companies that study the number of dollars going to people through small business loans also see a big impact,” Pollak said. “…in order to avoid lots of little banks failing, those banks are going to tighten credit standards pretty substantially…that could have a big effect [on small businesses] in the coming months. It’s not gonna show up in this jobs report, but that doesn’t mean it isn’t happening.”
Economists are mixed on whether current economic conditions indicate an imminent recession, though there’s a general consensus that if a recession does take hold later in the year, it would be short-lived and fairly mild.
Given the uncertain economic conditions, many employers have adopted a “wait and see” approach in regard to hiring.
“We have quite a few companies that have reached out to us that wanted to hire and then said, ‘well, actually, let’s hold on, we want to see how the first half of 2023 goes and kind of postpone to towards the second half,’” Hoegener said.
While the report shows a slowing but overall strong labor market, what’s less clear is how the job numbers will affect interest rates.
On May 3, the Fed raised interest rates to more than 5%, a 16-year high and the 10th consecutive increase since March 2022. Whether or not the Fed chooses to increase rates when they meet again in June will depend on a multitude of other data points that will be released later in May, such as reports measuring rates of inflation, which has come down in recent months but remains elevated, as well as retail sales, lending conditions, and GDP.
According to Brusuelas, while a recession may be on the horizon, there is ultimately ample reason to be optimistic.
“My assessment is that…recession is not the right “R” word to describe the economy,” he concluded. ”It’s actually resilience.”