The country’s employers scaled back hiring and added a modest 175,000 jobs in April, a sign that persistently high interest rates could begin to take a greater toll on the world’s largest economy.
Friday’s government report showed that hiring gains last month were well below March’s blockbuster gain of 315,000. And it was well below the 233,000 gain that economists had forecast for April, suggesting that the Federal Reserve’s aggressive series of interest rate hikes may finally be easing the pace of hiring.
Despite the slowdown, job growth represented a decent increase last month, although it was the lowest monthly job growth since October. As the nation’s households continue to spend steadily, many employers have had to continue hiring to meet customer demand.
The unemployment rate rose 3.9% – the 27th straight month it remained below 4%, the longest such rise since the 1960s.
The state of the economy is burdens voters as the presidential campaign intensifies in November. Despite the strength of the job market, Americans remain generally upset about high prices, and many of them blame President Joe Biden.
The American labor market has repeatedly proven to be more robust than almost anyone expected. When the Fed began aggressively raising interest rates two years ago to combat a punishing rise in inflation, most economists expected the resulting rise in borrowing costs to trigger a recession and drive unemployment to painfully high levels.
The Fed raised its key interest rate 11 times from March 2022 to July 2023, reaching the highest level since 2001. Inflation cooled steadily as expected – from an annual high of 9.1% in June 2022 to 3.5% in March.
But the robust strength of the labor market and overall economy, driven by steady consumer spending, has kept inflation consistently above the Fed’s 2 percent target. As a result, the central bank is postponing any consideration of interest rate cuts until then is gaining more confidence that inflation is steadily slowing towards his goal.
Fed interest rate cuts that would, over time, reduce the cost of mortgages, auto loans, and other consumer and business loans. Most economists do not expect interest rate cuts until the fall at the earliest.
The labor market is showing some signs of a gradual slowdown. This week, for example, the government reported on it The number of job vacancies fell to 8.5 million in March, the fewest in more than three years. Still, this is a large number of vacancies: before 2021, monthly vacancies had never exceeded 8 million, a threshold that they have now exceeded every month since March 2021.
On a monthly basis, consumer inflation has not declined since October. The inflation rate of 3.5% year-over-year in March was still well above the Fed’s target of 2%.