April jobs report shows enduring strength in labor market

Key takeaways:

• Non-farm payroll employment jumped by 253,000 in April 2023, well ahead of expectations and above March’s downwardly revised gains of 165,000 jobs.
• The unemployment rate ticked down to 3.4% in April from 3.5% in March, while the labor force participation rate and employment-population ratio remained unchanged.
• The jobs report came just days after the Federal Reserve’s tenth consecutive rate hike, with persistent labor market strength calling into question whether the Fed will hit the brakes on its tightening cycle.

The Bureau of Labor Statistics (BLS) jobs report for April 2023 revealed that U.S. non-farm payrolls increased 253,000 during the month. While the gains came in below the average of 290,000 jobs added over the prior six months, the increase of more than a quarter million jobs in April was ahead of economists’ forecasts and a jump from March’s downwardly revised jobs growth of 165,000, suggesting that the labor market remains strong. The unemployment rate of 3.4% in April marked a minimal dip from the 3.5% reported in March.¹

Global Investment Strategist for J.P. Morgan’s Private Bank, Shawn L. Snyder, said that the jobs report was relatively positive given the direction interest rates have headed recently.

“The headline figure was quite good given how restrictive interest rates have become with the economy adding 253,000 jobs in April,” said Snyder. “Though it should be taken with a grain of salt as the two prior months were revised down by a net 149,000 jobs.”

The upside surprise in added jobs came just days after the Federal Reserve raised interest rates by 25 basis points, its tenth consecutive rate increase in a prolonged battle to tame inflation.² Although Chair Jerome Powell suggested that the Fed could be nearing the end of its tightening cycle,³ April’s strong jobs growth raises questions about the potential for a reprieve in rate hikes.

Snyder noted how the strong labor market suggests a resilient economy despite the Fed’s attempt to cool the economy.

“The strong labor market is good news for workers, but it is mixed news for a Federal Reserve that is trying to get the economy to cool,” said Snyder. “We also saw an uptick in new orders in the services sector in April, which suggests that the economy is remaining stubbornly resilient.”

Looking at the details

Employment growth picked up steam in professional and business services, with gains of 43,000 jobs in April exceeding the monthly average of 25,000 jobs added in October through March. Strength in professional, scientific and technical services helped offset continued declines in temporary help services.

Other sectors seeing notable jobs gains in April included health care, which added 40,000 jobs, and leisure and hospitality, whose increase of 31,000 positions was driven largely by growth in food services and drinking places. However, the upticks in both these industries marked slowdowns from the average gains reported over the previous six months. Employment in leisure and hospitality remains 2.4% below the pre-pandemic level reported in February 2020.

The situation was similar for government employment – which remains 1.3% below its pre-pandemic level – with 23,000 jobs added in April 2023 coming in below the average of 52,000 over the prior six months. Social assistance and financial activities saw April jobs gains of 25,000 and 23,000, respectively, while employment in mining, quarrying and oil and gas extraction rose by 6,000, with gains concentrated in mining support activities.

Other key industries such as construction, manufacturing, wholesale trade, retail trade, transportation and warehousing, and information saw minimal changes in their employment numbers during the month of April.

April’s labor force participation rate of 62.6% and employment-population ratio of 60.4% were unchanged from the levels reported in March. These indicators remain below their pre-pandemic levels of 63.3% and 61.1%, respectively. A lower labor force participation rate could indicate that employers need to improve incentives to fill open positions, suggesting potential upward pressure on wages.

The jobs report for April also showed minimal changes to the overall unemployment picture, with an unemployment rate of 3.4% and the number of unemployed persons at 5.7 million marking minor downticks from the levels reported in March. Unemployment rates among major demographic groups also remained relatively stable in April.

Although the addition of 253,000 jobs in April exceeded expectations, the report also included downward revisions of 78,000 and 71,000, respectively, to the non-farm payroll numbers reported in February and March. The BLS revises data from reports released in previous months based on additional information it receives from businesses and government agencies as well as a reevaluation of seasonal impacts.

“Given the backdrop, the jobs report can no longer be viewed in isolation. It has to be viewed in tandem with inflation, which we will get a read on next Wednesday,” added Snyder. “If the labor market stays strong while inflation continues to fall, that’s good news and supports the soft-landing narrative.”

“On the other hand, if inflation stays elevated, then a resilient labor market may put additional Fed rate hikes back on the table and increase the odds of a hard landing down the road,” said Snyder.