U.S. employment continued to increase at a robust pace in April and wage growth moderated, though a surprise drop in the participation rate suggests the labor market will remain exceedingly tight.
Nonfarm payrolls increased 428,000 in April, matching the prior month, a Labor Department report showed Friday. The unemployment rate held at 3.6% as the size of the labor force declined. Average hourly earnings rose from a month earlier.
The median estimate in a Bloomberg survey of economists called for a 380,000 advance in payrolls and for the unemployment rate to fall to 3.5%.
Ten-year Treasury yields remained slightly higher, U.S. stock futures rose and the dollar fell.
The solid payrolls advance suggests demand for labor remains strong. Job openings and quits are back at record highs, and businesses are scrambling to hire enough workers to keep up with resilient consumer demand. The extreme competition for workers has driven up wages at a rapid pace in recent months, but even so, many workers have not seen their incomes keep up with inflation.
Friday’s report suggests the pace of those increases may be beginning to moderate. Average hourly earnings rose 0.3% from March, falling short of economists’ estimates after an upward revision to the prior month. Earnings were up 5.5% from a year earlier.
A sustained softening in wage growth would be good news for the Fed as it seeks to subdue the fastest inflation in four decades. Chair Jerome Powell said Wednesday that the central bank hopes to temper demand for workers, with the aim to slow wage growth and inflation “without having to slow the economy and have a recession and have unemployment rise materially.”
Policy makers this week raised interest rates by the most since 2000 in an effort to combat rising prices, and Powell said hikes of such size are on the table for upcoming meetings as well.
The labor force participation rate — the share of the population that is working or looking for work — fell to 62.2%, the lowest in three months, and the rate for workers ages 25-54 edged lower. That makes the Fed’s job more complicated in trying to bring labor demand in line with supply.
A variety of factors, including care-giving responsibilities for children and the elderly, have kept participation from bouncing back to its pre-pandemic levels. Looking ahead, higher wages paired with surging prices for necessities like food and shelter may bring more Americans back to the labor force.
Job growth was broad-based across industries, led by leisure and hospitality, manufacturing and transportation and warehousing.