U.S. jobs growth was stronger than expected in April, a reminder of the U.S. economy’s resilience, and the Federal Reserve signaled it was “getting closer” to pausing its interest rate hike cycle.
The U.S. added 253,000 nonfarm payroll jobs last month, confounding expectations of a recession, according to the Bureau of Labor Statistics. However, figures for the previous two months were marginally revised.
The unemployment rate was a better-than-expected 3.4 percent, compared with consensus estimates of 3.6 percent. Hourly wage growth strengthened to 0.5 percent month over month. On a year-over-year basis, wages rose 4.4 percent.
Wages are a key factor in inflation, particularly in the services sector, so economists and investors were closely watching for signs that higher interest rates are slowing the economy and reducing inflation.
The US Federal Reserve announced its tenth consecutive interest rate hike on Wednesday, raising its benchmark federal funds rate from 5 to 5.25 percent. Fed Chairman Jay Powell said the labor market was “abnormally tight” but “there are some signs that supply and demand . . . are coming back into better balance.”
Data released earlier this week supported Powell’s assessment, with job openings from April 2021 falling to a much smaller-than-expected level. However, separate figures released last week highlighted that wage growth was relatively strong and that inflationary pressures remained high in many areas. .
Powell insisted on Wednesday that it will take some time for inflation to reach the Fed’s 2 percent target, but investors are betting that the Fed will cut rates, first as soon as July.
Jack Janasiewicz, a portfolio manager at Natixis Investment Managers, said stronger-than-expected jobs or wage growth data this week “will revive the perception that the Fed is not done.”
Two-year Treasury yields rose to session highs following the data release, moving in line with interest rate expectations.
He also highlighted the importance of data on the labor force participation rate, which measures the number of Americans who are working or actively looking for work. The rate has increased in recent months after falling dramatically early in the coronavirus pandemic, but remained unchanged at 62.6 percent in April.
“There are reasons to believe that people are coming back from the sidelines and increasing the labor supply, which is what the central bank is looking for,” Janasewicz said. “One of the best paths to a soft landing is to increase the labor supply rather than lay people off.”
Asked Wednesday about the tension between the central bank’s twin mandates to reduce inflation while boosting employment, Powell said: “Right now, we have to focus on reducing inflation. Fortunately, we’ve managed to do that so far without increasing unemployment.
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