America’s employers added a robust 253,000 jobs in April, evidence of a job market that’s still surprisingly strong despite rising interest rates, chronically high inflation and a banking crisis that could weaken the economy. The unemployment rate fell to 3.4%, hitting a 54-year low. Hiring growth over the past month compared to 165k in March and 248k in February is at levels considered strong by historical standards.
The job market has remained strong despite the US Federal Reserve’s aggressive rate-hike campaign last year to fight inflation. Layoffs are still relatively low, job offers comparatively high. Still, the Fed’s ever-higher borrowing costs have weakened some key sectors of the economy, most notably the housing market.
Inflation has eased steadily since hitting a four-decade high last year, but is still well above the Fed’s 2% target.
Fed Chair Jerome Powell himself sounded a bit perplexed this week by the resilience of the job market. The central bank has raised concerns that a resilient labor market is putting upward pressure on wages – and prices. It’s hoping for a so-called soft landing — a slowdown in the economy and jobs just enough to tame inflation, but not enough to trigger a recession.
One way to achieve this, according to Powell, is for employers to post fewer job openings. Indeed, the government reported this week that job vacancies fell to 9.6 million in March – a still high figure but from a peak of 12 million in March 2022 and the lowest in almost two years.
The Fed chairman said he was optimistic the nation could avoid a recession. However, many economists are skeptical and assume that a downturn will set in before the end of this year.
Another encouraging sign for the Fed is that more Americans are looking for jobs. The more labor available to employers, the less pressure there is on employers to increase wages.
Still, the ever-increasing cost of borrowing has done some damage. Existing home sales fell 22% year over year in March due to higher mortgage rates. Investment in housing has plummeted over the past year.
America’s factories are also collapsing. An index compiled by the Institute for Supply Management, an organization of purchasing managers, has signaled a six-month slowdown in manufacturing.
Even consumers, who drive around 70% of economic activity and have been spending healthily since the pandemic recession ended three years ago, are showing signs of exhaustion: Retail sales fell in February and March after starting the year with a bang.
The Fed’s rate hikes aren’t the only serious threat to the economy. Republicans in Congress are threatening to default the federal government on their debt by refusing to raise the borrowing limit unless Democrats accept drastic cuts in federal spending. A first-ever federal debt default would rock the US Treasury market – the largest in the world – and potentially trigger an international financial crisis.
The global backdrop is already looking bleaker. The International Monetary Fund last month downgraded its forecast for global growth, citing rising global interest rates, financial uncertainty and chronic inflation.
Since March, the American financial system has been rocked by three of the four largest bank failures in US history. Concerned about nervous depositors withdrawing their money, banks are likely to cut lending to conserve cash. Multiplied across the banking industry, this trend could result in a credit crunch that would shake the economy.
At the personnel service provider Robert Half, managing director Ryan Sutton still sees a “pent-up demand” for workers.
Applicants, not employers, still enjoy the advantage, he said: To attract and retain workers, companies – particularly small ones – need to offer flexible working hours and the ability to work from home when possible.
“A little flexibility in time so someone can finish work later or earlier so they can take care of kids, family and elderly parents — those are the things the modern worker needs,” Sutton said. “Not offering those and trying to still have a 2019 business model of five days a week in one office – that’s going to put you at a disadvantage” when it comes to finding and retaining talent.
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