Now, American investors have hopped back on the rate-loom bandwagon, but they could be on it for the wrong reasons after the April jobs data on Friday and a couple of other data releases during the week that suggest the economy might be in the process of cooling a bit more quickly than understood.
The US added 175,000 jobs in April, well below expectations, in a sign that the labor market in the world’s largest economy is slowing.
That was less than the 240,000 forecast and the upwardly revised 315,000 for March (originally 301,000). But February saw a cut of 34,000 in a revision to a more sedate 236,000, which adds to the suspicion that economic activity is cooling.
And wage growth slowed a little more than expected - average hourly earnings rose 0.2% from March to be up 3.9% for the year - both less than forecast.
That fall was the most unexpected part of the data release and was the lowest annual rise in hourly earnings since June 2021.
Though the unemployment rate ticked up from 3.8% to 3.9% in April, it was the 27th straight month in which the rate has remained below 4%, tying the longest such streak since the 1960s.
Even with the April slowdown, last month’s job growth amounted to a solid increase, though it was the lowest monthly gain since October. With the nation’s households continuing their steady spending, many employers have had to keep hiring to meet their customer demand.
Following the report, traders priced in a strong chance of two interest rate cuts by the end of 2024, and while that’s now back as the driving mantra for investors, more sanguine economists warn that those rate cuts might end up being needed to support a cooling economy and stop the rot later in the year. The report comes two days after the Fed again voted to hold borrowing costs steady, keeping its benchmark overnight borrowing rate in a targeted range between 5.25% and 5.5%, the highest in more than 20 years.
Following the decision, Fed Chair Jay Powell characterized the jobs market as “strong” but noted that inflation is “too high.” Friday’s report won’t change that view except to give a little confidence about cooling wage costs.
But the jobs data, a steadying in job vacancies (which are still very high historically), and the slippage in wage growth could suggest a slide in the pace of activity is gathering pace.
A standout in the stats was the continuing strong jobs market for women (as it is here in Australia).
The Bureau of Labor Statistics showed that the participation rate for prime-age women between 25 and 54 years old rose to 78% in April, hitting the highest level on record since 1948. That was up from 77.7% in March.
The weaker headline figure, a slight rise in the jobless rate in April, and the slowing wages should be seen against a three-year low for job vacancies in March - 8.5 million - little changed from February and the lowest total for three years. But it was also sharply higher than any vacancy figure reported before the pandemic.
First-time unemployment benefits were unchanged at the end of April at 208,000 last week. That was the lowest figure since early February. The four-week moving average for first-time unemployment insurance filings was 210,000, a decrease of 3,500 from the average of the previous week.
That’s despite thousands of layoffs from Tesla, Amazon, Apple, Microsoft, and other major employers and the collapse of a couple of cafe/restaurant chains.
