The US job market was far weaker than expected in April, perhaps marking a crucial turning point for the Federal Reserve.
The US job market took an unexpected blow in April, as data from the Bureau of Labor Statistics reported on Friday. The growth was far lower than predicted, with unemployment unexpectedly rising from March. Revised data from February and March also extended the negative outlook to the past few months.
Unemployment rose to 3.9%, still very low but more than the 3.8% expected. Under US President Joe Biden’s administration, unemployment reached an all-time low, though it has risen slightly since then.
The economy added 175,000 new jobs in April, much lower than the 240,000 expected. Revised data from February showed a gain of 236,000 jobs instead of the 270,000 initially reported. In March, the economy added 315,000 new jobs, more than the 303,000 reported but not enough to offset the losses in the revised data.
Healthcare and social assistance amounted to almost half of the added jobs at 87,000. They were followed by retail, transportation, and warehousing.
Paul Ashworth, an economist at Capital Economics, told Yahoo! Finance that the higher-than-expected growth in the past months was due to a warmer-than-usual winter. “April’s renewed slowdown bears that out a little,” Ashworth added, “with construction employment up by only 8,000 and leisure & hospitality rising by a trivial 5,000.”
According to the Fed’s plan
The Federal Reserve was disappointed by the strong job market growth so far. The Fed’s fight against inflation led to a steep rise in interest rates, reaching the 20-year high of 5.5%.
However, the US economy remained inexplicably strong, with GDP growing more than expected and the job market expanding.
Such growth kept inflation too high for the Fed’s liking. US inflation in March edged up to 3.5%, higher than market estimates. The Fed’s Chairman Jerome Powell said they would not start cutting rates until inflation is on a stable path toward the 2% target.
With sticky inflation hovering around the 3% mark, the Fed’s committee pushed rate cuts until after the summer. Some market analysts predict no cut will take place in 2024 after all.
But April’s data may be the turning point the Fed needed. GDP expanded much less than predicted, and now the job market is also dipping down.
The Fed will need to see more favorable data than this. April’s inflation, for example, will be a key indicator for the Fed’s short-term timeline. While a summer cut looks unlikely, the Fed may still be in time to reverse its monetary policy ahead of the US elections in November.
