The labor market is still defying gravity — for now.
Employers added 253,000 jobs in April on a seasonally adjusted basis, the Labor Department reported Friday, in a departure from the cooling trend that had marked the first quarter and was expected to continue.
The unemployment rate was 3.4 percent, down from 3.5 percent in March, and matched the level in January, which was the lowest since 1969. Wages also popped slightly, growing 4.4 percent over the past year.
The higher-than-forecast job gain complicates the Federal Reserve’s potential shift toward a pause in interest rate increases. Jerome H. Powell, the Fed chair, said on Wednesday that the central bank might continue to raise rates if new data showed the economy wasn’t slowing enough to keep prices down.
It’s also an indication that the failure of three banks and the resulting pullback on lending, which is expected to hit smaller businesses particularly hard, hasn’t yet hamstrung job creation.
“All these things are telling us it’s not a hard stop; it’s creating a headwind, but not a debilitating headwind,” said Carl Riccadonna, the chief U.S. economist at BNP Paribas. “A gradual downturn is happening, but it sure is stubborn and persistent in the trend.” Despite the strong showing in April, the labor market continues to gently descend from blistering highs.
Downward revisions to previous two months meaningfully altered the spring employment picture, subtracting a total of 149,000 jobs. That brings the three-month average to 222,000 jobs, a clear slowdown from the 400,000 added on average in 2022. Most economists expect a more marked downshift later in the year.
Job growth was broad-based, even if less than the eye-popping numbers of 2022, when the nation was rapidly digging out of a deep pandemic deficit. Leisure and hospitality added 31,000 jobs, down from a 73,000-job average over the past six months but another step toward its high in early 2020.
Even sectors that tend to be more sensitive to interest rates and had been leveling off in recent months, like construction, retail and manufacturing, eked out gains.
“There seems to be an underlying strength to the labor market that has puzzled analysts and policymakers alike,” said Karin Kimbrough, the chief economist at LinkedIn. “Even when you see these pockets or cracks of weakness, they seem to reseal.”
The labor market has been uncommonly tight since early 2021, as employers struggled to reverse a sudden mass layoff and navigate huge shifts in the demand for goods and services. That has benefited groups that have historically been at a disadvantage in the labor market.
Wages for those on the bottom of the pay scale rose faster than they have in decades. The unemployment rate for Black Americans reached its lowest point on record in April, at 4.7 percent, and the gap between the unemployment rates of white and Black people was also the smallest ever measured.
The share of people in their prime working years — 25 to 54 years old — participating in the labor market reached 83.3 percent, matching a level not seen since 2008. That rise has been powered by prime-aged women, who are participating at a rate never seen before, at 77.5 percent.
In recent months, that exceptional mismatch between the supply and demand for workers has been coming into balance.
Job postings, which had reached nearly double the number of available workers, tumbled in the first quarter. According to the job search website Indeed, which has more finely grained data, listed positions in marketing and human relations — those most correlated with a company’s growth plans — are down 43 percent and 45 percent over the year, respectively.
At the same time, a rebound in immigration eased labor shortages, especially in fields like leisure and hospitality and health care, allowing those to continue to grow quickly. And declines in sectors that had surged during the pandemic, such as transportation and warehousing, may have propelled more people into other fields with lots of openings for jobs that don’t require college degrees, like hotels and restaurants.
The outflow from blue-chip internet companies like Google and Meta has been a particular boon for other industries that had been desperate for people with digital skills. United Airlines, which plans to hire 15,000 people this year, said this week that it had already picked up 120 people laid off by major tech employers.
That’s why the upheaval in Silicon Valley, kicked off by a swift increase in borrowing costs that dried up venture capital, largely hasn’t derailed those with the relative good fortune of losing jobs while the economy is still robust.
Katie Li, a 26-year-old software engineer in Palo Alto, Calif., was offered a job at a health technology company in late 2022. But after she’d left her former job and before she could start the new one, the company rescinded the offer, saying that a few contracts had been paused and that it wasn’t sure it could sustain the position. In a panic, she started applying elsewhere, sending out 200 applications over a few months.
That effort yielded three new offers, and Ms. Li picked one that she thought had a compelling mission, serving people on Medicaid. She started in March, making 71 percent of her old salary — but like many of her friends who’ve lost positions lately, she is happy to be re-employed and have health insurance.
“Most people take slightly lower salaries, but compared to the normal person, they’re still super high,” Ms. Li said. “I think I was recognizing that other things are more important than career.”
Given the labor market’s surprising durability, most economic forecasters reason that the Federal Reserve’s 10 successive interest rate increases have yet to fully filter through the economy. As they do, the likelihood of staffing reductions goes up — but the distribution might look different than it has in recessions past.
The Conference Board recently published an index assessing the risk of job loss in different parts of the economy. Those with the most acute labor shortages, such as health care and local government, are at comparatively low risk. Those that thrive on low borrowing costs, such as construction, continue to face higher risk.
“We expect a more negative and profound effect of interest rates on the labor market in the second half of the year,” said Frank Steemers, a senior economist at the Conference Board, noting that recent banking turmoil has also probably not translated into payrolls.
“If there’s anything that would make you update your forecast to make it a deeper recession,” he said, “definitely this would be it.”
For now, though, most employers are taking a cautious approach, rather than intentionally downsizing. Many are first shedding contract workers; employment through temporary help services has fallen for the past year.
Erin Doehring is the human resources director for TAL Holdings, a collection of hardware and building supply stores in the Pacific Northwest that employs about 650 people. The company grew rapidly in 2021 and 2022 as more people moved to the small towns where its stores are.
But that slowed over the winter and early spring, as higher borrowing costs — and heavy snowfall — hindered home building and remodeling. The company hasn’t laid anyone off, but it is thinking about reducing hours and shrinking by attrition. That reflects a general plateau in its retail category, which jumped in 2020 but has since receded. Ms. Doehring also said she had seen a higher volume of better-qualified applicants for the jobs that are open.
“We are definitely being more strategic about the positions we’re hiring for, really keeping a closer eye on, ‘Do we really need to backfill this position?’” Ms. Doehring said. “Should we leave this position open at the moment and reconsider at a later date?”
