U.S. job growth slows but wage increase remains high, keeping Fed on course for rate hikes

The April jobs report showed that the U.S. economy added 175,000 jobs, below the expected 243,000. The unemployment rate rose to 3.9%, as more people entered the labor force, but struggled to find jobs. While job growth slowed, wage growth remained high, with average hourly earnings increasing by 0.2%. The annual wage increase fell below 4.0% for the first time in nearly three years, to 3.9%.

The report indicates a cooling labor market but does not suggest a downturn is imminent. Fed officials, including chair Jerome Powell, have emphasized the tight labor market and high wage growth as indicators that rate hikes are necessary to bring down inflation.

"We're sticking with our call for a first ease in July," said Michael Feroli, chief U.S. economist at JPMorgan. "The market is not there, but we believe that if the next two job reports show continued cooling in labor market activity, then the Fed will be comfortable taking back some of its policy restraint."

The market reacted positively to the report, with stocks trading higher and the dollar falling against a basket of currencies. U.S. Treasury prices rose, pushing yields to multi-week lows.

Goldman Sachs estimated the underlying pace of job growth based on the payroll and household surveys at 189,000, but added "we estimate that counting immigration fully would boost this by roughly 20,000."

The labor force participation rate was unchanged from March at 62.7%, the highest since November. The proportion of working-age Americans who have a job or are looking for one has increased significantly since the depths of the pandemic but remains below pre-pandemic levels.

The number of people working part-time because they could not find full-time employment increased by 135,000, but the number of people experiencing long periods of unemployment remained low. The employment-to-population ratio dipped to 60.2% from 60.3% in March.

"Despite missing expectations, signaling an economic cool down, the labor market has still maintained a pattern of growth and consumers can be cautiously optimistic that the Fed will be able to successfully lower inflation while also avoiding a recession," said Steve Rick, chief economist at TruStage.

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