Kiplinger Jobs Outlook: Hints of a Slowdown in Progress

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A stronger-than-expected April jobs report (253,000 net jobs added) shows that recession is not here yet, but it also shows signs of future weakness. Job gains were revised down in both February and March by a total of 149,000. Seasonal adjustments are more difficult since the pandemic, and likely boosted job gains in April’s report by at least 50,000. The number employed by temporary help agencies continued to fall.

The unemployment rate declined from 3.5% to 3.4% because the number of people coming into the labor force to look for work declined, which is usually a sign of a more difficult job search environment. 

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But the slowdown is taking a leisurely pace. Hiring in services is still strong, given the labor shortages in the sector. There were shortages in health care even before the pandemic, and these are continuing. The numbers of food service and personal-care services workers (such as hairdressers) still have not surpassed their pre-pandemic levels; these are among the few sectors of the economy where that has not happened yet. As a result, a slowing economy may dampen hiring in services, but won’t stop it.

Wage growth ticked up to 4.4% over the past year for all workers in April. We expect that the yearly rate will slow to around 3.3% before the end of 2023. However, wage growth for production workers has been running higher, illustrating the various labor shortages at the lower end of the wage scale. Their wage gains slowed to 5.0% over the past year. We expect this to come down to 4.3% before year-end.

This jobs report is not enough by itself for the Federal Reserve to pause its interest rate hikes in its fight against inflation. But this could still be the last rate hike the Fed will do, so as not to stress the banking system further. The Fed doesn’t have to decide until its next policy meeting on June 14. The results of the next inflation report, on May 10, will likely be important to their deliberations.

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