Not so long ago, U.S. employment growth of less than 100,000 jobs per month meant a weak labor market and a possible recession. But we don’t need more, because that’s about all there is to keeping unemployment stable and the Fed at bay.
When the U.S. Bureau of Labor Statistics releases April payrolls at 8:30 a.m. ET on Friday, it is expected to increase by just 55,000 jobs. Although weak compared to recent economic conditions, it is enough to keep unemployment at a relatively low 4.3%.
Overall, while the labor market has undoubtedly cooled, the situation is generally stable and resilient despite many challenges.
“The headline message is similar to previous jobs reports, but if anything, it’s more emphatic,” said David Tinsley, senior economist at Bank of America Research Institute. “Labor market momentum in terms of employment is really solid.”
However, the degree of stability is relative.
Contrary to conservative expectations, employment growth in March totaled 178,000 jobs, the highest month since December 2024. However, the 12-month average was still only 22,000. Excluding health care, the economy has lost net jobs.
profits flow upwards
To understand the current labor market, we need to look beyond the headline numbers, Tinsley said, referring to the K-shape often used to describe the current economic climate in which the benefits of prosperity are skewed toward high earners.
“This is a very interesting set of divergences across the economy. The overall picture looks to us to be very solid, both in terms of wages and salaries, but there’s a lot of K involved,” he said. “The headlines look solid, but there’s a lot of disconnect in this economy right now.”
One area in particular he cites is wage growth.
Average hourly wages are expected to rise 3.8% annually in April, but it’s unclear where that profit will go.
Bank of America’s rich data shows that the top third of earners saw their after-tax wages rise 6% in April, while the bottom saw their wages rise 1.5%. This is a particularly distressing statistic given that the consumer price index rose 3.5% through March, indicating that low-income earners are experiencing a net loss of income.
“Distribution is very important here,” Tinsley said.
The economist also pointed out that there is an employment gap in terms of company size, with small and medium-sized enterprises showing a decline in employment over the past three months.
Fed reaction
The crosscurrents pose a challenge to Fed policymakers, who are increasingly divided over the direction of interest rate policy.
Earlier this week, New York Fed President John Williams said there were “conflicting signs” with data such as weekly jobless claims showing stabilization even as consumer sentiment surveys showed conditions were softening.
“While much of the hard data points to stabilization, some soft data continues to suggest a modest slowdown,” Williams said.
“Taken together, these indicators suggest that labor market slack is increasing,” Williams added, using a term synonymous with labor market softening. “This discrepancy in hard and soft data may reflect the effects of a labor market with fewer hires and fewer layoffs, but we need to continue to monitor closely for signs that the situation is changing.”
Investors expect the Fed to keep policy unchanged for the rest of the year due to relative stability in the labor market and rising inflation. Williams reiterated his position that he believes monetary policy is “appropriately placed” for the current situation.
