April Employment Report

KEY DATA:  Payrolls: +428,000; Private: +406,000; Revisions: -39,000; Manufacturing: +55,000/ Unemployment Rate: 3.6% (Unchanged); Participation Rate: -0.2 pct. pt.; Wages (Over-Year): +5.5%

IN A NUTSHELL: “Once again I have to ask, where’s the labor shortage?”

WHAT IT MEANS:  If you pay them, they will come, which seems to be the case in the labor market.  Wages are soaring and that is attracting workers, as payrolls jumped again in April.  Since April 2021, over 6.6 million workers have been added, an extraordinary number.  The total number of jobs is now just 1.36 million below where it was at the peak in February 2020.  The gains were widespread, with over 71% of the private sector industries posting increases.  There weren’t a whole lot of outliers in the report, which given the level of gain is a surprise.  Maybe the surge in manufacturing employment was on the too high side, and restaurants keep adding workers like crazy despite their low pay, but otherwise, the numbers look reasonable.  Indeed, there was a surprise on the downside as the go-to labor shortage sector, employment services, posted a decline.  In other words, this is a solid report.

On the unemployment front, the rate was stable.  However, the labor supply dropped and the participation rate declined.  That usually happens in a weakening market, which doesn’t seem to be the case given all the hiring. 

Meanwhile, firms continue to pay up for new employees. Yes, there was a moderation in the pace of wage gains both over the month and the year, but the smoothed trend is still up.  This signals that the economy is still in good shape despite the negative first quarter growth number.    

IMPLICATIONS:I know that every business is complaining about the inability to find workers.  Well, they seem to be doing just fine. The pace of job growth is two times or greater than the sustainable rate.  Given all the stories about the difficulty in hiring, it is likely the increases in payrolls will moderate.  The big unknown is the labor force.  It has been expanding robustly, which has been needed given the demand for workers.  But I am just not sure the pace can be sustained, even with Covid nearing endemic stage.  I expect that by the end of the summer, we will be looking at job growth numbers closer to 200,000 than 400,000 per month.  Normally, that would be called really good, but given what we have been getting, some will be disappointed.  Economists would be pleased to see a softening as the current level of wage gains is also not sustainable.  For the Fed, this number is a problem.  It wants to slow the economy but there are few signs that is happening.  That puts pressure on the FOMC to repeat at the June meeting the fifty-basis point increase that was implemented this week.  It also raises questions about how high rates will have to go to wring inflation out of the system.  Sometimes good news is not necessarily good news and this report, thought it shows that economy is still moving forward solidly, may be a problem for investors.