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Payrolls Power Forward in April

RFP
Nonfarm payrolls rose by 428,000 jobs in April, matching the pace of March. Private sector payrolls came in at 406,000, slightly weaker than March but still stunningly strong. Public sector employment picked up by 22,000 in April, with more hiring in education but our public schools remain chronically understaffed. Local hiring in education is still down more than 300,000 from the peak in February 2020.

Burnout and lagging wage gains in education are not helping. The employment cost index for the first quarter revealed that public sector compensation is rising at less than half the pace of private sector wage gains.

Leisure and hospitality continued to lead private sector gains, with an increase of 78,000 jobs. A late Easter extended the spring break season well into April, while travel bookings for summer are picking up. This is all in addition to a rebound in business travel. The leisure and hospitality sector is still down 1.4 million jobs from pre-crisis levels; those losses more than account for the 1.2 million shortfall in employment from the peak of February 2020.

Manufacturing added 55,000 jobs in April, driven by a pickup in motor vehicles and parts. Chip shortages have at least temporarily eased. Oil and gas mining had the biggest one-month surge since 1981; domestic oil production is picking up in response to the surge in oil prices. Smaller producers are leading those gains.

Transportation and warehousing added 52,000 jobs in April and is now running 674,000 above pre-crisis levels. The rebound we are currently seeing in manufacturing is aiding those gains, as manufacturers are attempting to hedge against future supply chain shocks with larger inventory cushions.

Professional services continued to ramp up and added an additional 41,000 jobs. Gains were broad-based and are now 738,000 above from the February 2020 peak.

Health care added 34,000 jobs, with gains more broad-based than we have seen in recent months. An acceleration in wages is helping to fill jobs but many hospitals can no longer afford the costs of nurses.

Average hourly earnings rose 0.3% from March and were up 5.5% from a year ago. That is in line with recent gains. Average hours worked per week held steady at 34.6 and remained above the levels we saw pre-pandemic. The blistering 11.3% surge in unit labor costs from a year ago that we saw in the first quarter was less a residual of wage gains and more due to churn.

Record quit rates and a lack of investment in recent years pushed productivity growth down at the fastest pace since 1947 in the first quarter. That is what keeps members of the Federal Reserve up at night. Surging labor costs are adding to inflation pressures and eroding living standards; rising wages do not mean much when they are trailing inflation.

The ADP report released earlier this week suggests that small businesses are suffering more than large employers. Employment among small businesses in that report actually declined sharply during the month. Service sector businesses, where wages have accelerated the most, were hardest hit.

Separately, the unemployment rate held at 3.6%. Participation in the labor market fell slightly from 62.4% in March to 62.2%. Losses were greatest among those with less than a high-school education. Some of those losses could be due to another surge in Omicron, especially among kids.

The ranks of workers out ill during the month remained elevated at 1.2 million. This represents the second round of Omicron infections and underscores the staffing challenges employers will continue to face as the pandemic morphs into an endemic. That is about 20% above the losses employers endured during the flu season before the pandemic and could occur in waves, several times a year. This is another factor undermining worker productivity and adding to wage bills for employers.

The ranks of the unemployed - those actively seeking work - fell slightly but remained about 200,000 above the trough in unemployment in February 2020. Preliminary data on April by the job posting site Indeed suggests that posting slowed slightly over the month. The ratio of job openings to workers is expected to hit 1.8 in April, matching the second-highest level on record. That is not exactly reassuring to the Federal Reserve, which is looking for that ratio to drop close to one-to-one.

Bottom Line
The labor market remained strong in April. That is a blessing and a curse. It means more opportunities for workers but the tides have turned and the resilience of the labor market is now adding to inflationary pressures. That is eroding living standards. Fed Chairman Powell was hopeful that he could derail inflation without a “significant” increase in unemployment. Hope is not the same as reality.

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