Job Market Still Ripe & Wages Still Growing but not as high as workers expect

The new jobs report for April from the Bureau of Labor Statistics shows a labor market that remains hot, as concerns about the omicron virus fade.

On the household side, the unemployment rate dropped to 3.6% in the US and was nearly back to its pre-pandemic low (3.5%).

With so many people going on their own and becoming bosses, it’s suprising that the job vacancy rate (reported earlier this week in a different BLS report) now at 7%, we continue to have a lopsided job market with nearly twice as many open jobs as there are workers to fill them.

Labor force participation and overall employment both grew – by 418,000 and 736,000 respectively. Though each remains about 1 percentage point below its pre-pandemic peak, both labor force activity and employment are moving in the right direction. There was a gain in participation for women, who had earlier dropped out of the labor force to care for kids out of school or other family members. Now a more stable situation in school seems allow them to return.

On the payroll side, jobs grew by 431,000 – roughly in line with economist expectations. Job growth was especially strong in leisure/hospitality (112,000) and professional services (102,000). The former sector remains about 1.5 million jobs below its pre-pandemic peak, as employers continue to struggle with hiring and retaining workers.

And wages continue to grow. Overall hourly earnings rose by about 5% on an annualized basis, and 5.6% over the year. While slightly less than in some earlier months, such wage gains would reflect real (inflation-adjusted) wage growth under normal circumstances – but are now running behind inflation. And, in sectors like leisure/hospitality and retail, annualized wage growth rates were 14% and 9% respectively, as employers battle to find and keep workers.

Of course, rising wages might themselves contribute to inflation, in addition to rising food and fuel prices caused by the war in Ukraine. Hopefully, the latter increases will level off soon. The Fed has begun raising interest rates, and will continue to do so this year and beyond. These rising rates will eventually take some steam out of the labor market – though we still hope that the Fed can achieve its “soft landing” of dampening inflation without causing a recession. And productivity growth in the US economy has risen above 2% per year, which should also help generate some wage growth above inflation.

In the meantime, rising employment, labor force activity and wages in the hot job market remain good outcomes for most US workers.