The U.S. unemployment rate likely fell to 3.5% in April, the lowest level since the 1960s, and many economists expect it to continue falling, which could complicate the fight of the Federal Reserve against inflation.
The reason? The scorching demand for labor doesn’t seem to be calming down any time soon. Job vacancies and departures have returned to new highs and employment costs are rising at a record pace.
Such an intense need for workers risks triggering even faster wage growth at a time when the Fed is already trying to rein in the highest inflation in four decades.
“We’re going to hit historically very low unemployment rates very soon,” said Gad Levanon, chief economist at the Burning Glass Institute, a labor market research group. “I don’t see what will reverse it unless we are in a recession.”
Fed officials, who on Wednesday raised interest rates the most since 2000, said in a statement after a two-day policy meeting that “jobs gains have been robust in recent months” and that it there has been a substantial drop in the unemployment rate.
The government report released on Friday is expected to show employers added an additional 380,000 jobs in April, a moderate decline from March but still roughly doubling the average rate of payroll growth over the past year. the latest expansion.
Road to 3%
Calculations by Bloomberg Economics suggest it wouldn’t take much to bring the jobless rate to 3% or lower by December.
This could come to fruition assuming the labor force participation rate rises to 62.9% from the current 62.4% and the number of employed Americans increases by an average of 350,000 per month. That’s just over half the average pace of job growth in the last two jobs reports, as measured by the government’s monthly household survey.
Fed Chairman Jerome Powell said on Wednesday that job creation would slow amid less supportive fiscal and monetary policy, and that greater participation will help the jobless rate stay around 3.5. % this year, in line with the central bank’s March projections. Powell also said it was “certainly possible” that the unemployment rate would continue to decline.
“We could see the unemployment rate drop a lot further – to 3%, maybe even below,” said Julia Pollak, chief economist at ZipRecruiter, a job search site.
Survey commentary from the Institute for Supply Management’s latest reports on the manufacturing and service sectors pointed to persistent – and worsening – employment problems. In March, there were 1.9 job vacancies per unemployed person – the largest such gap in government data since the end of 2000.
This is one of the reasons why the pace of wage growth can continue at exceptionally high levels and remain a lasting source of inflationary pressures.
“As long as the gap between demand and supply remains wide – or widens further as it has with this data – upward pressure on wages will persist,” said Michelle Meyer, chief economist. American at the Mastercard Economics Institute.
The jobs report should show another healthy wage gain. The average hourly wage is estimated to have increased 0.4% from the previous month and 5.5% from the previous year. This follows data released last week which showed private sector wages and salaries rose 1.3% in the first quarter. Even so, inflation continues to outpace wage growth for most people.
There is also a greater scope for wage gains. The share of people who have experienced no change in salary in the past year has fallen to just 11%, according to calculations by the Federal Reserve Bank of Atlanta. This is the lowest proportion since 2007.
Yet Nick Bunker, director of economic research at jobs website Indeed Inc., said that even if the job market isn’t cooling, “the temperature isn’t rising like it has been all year. last”. And that could mean a stabilization of wage growth.
Bunker expects private sector wages, which rose 5% in the 12 months to December and March, to remain in that neighborhood in the near term, but could decline over the course of the year as that the workers keep coming back.
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