An Inconsistent Narrative on the U.S. Labor Market in April’s Jobs Report

Once again, there was no dramatically negative change in the U.S. labor market statistics contained in the latest monthly Employment Situation report from the Bureau of Labor Statistics. Quite the opposite. In April, the total number of jobs in the economy rose by +253,000 and the seasonally adjusted unemployment rate stayed extremely low, at 3.4%.

In March 2023, the SA U rate had been 3.5%, and in April 2022, 3.6%. The not seasonally adjusted unemployment rate in the latest month was a barely-there 3.1%.

The continuing strength in jobs creation having been noted, there is another story that needs telling. It is hard to find a consistent narrative in the reported U.S. employment numbers.

Results from the Job Openings and Labor Turnover Survey, came out at the beginning of this week and it indicated that the total number of job openings in the U.S. economy slid considerably in March, down by nearly -400,000 month to month and behind by -2.4 million from a year ago. For construction, the changes in openings were -63,000 month to month and -72,000 year over year.

Also, from the JOLTS report, layoffs for all jobs were much higher in March, +248,000 m/m and +410,000 y/y. In the construction sector, they were +112,000 m/m and +172,000 y/y.

There is a sense of waiting for the other shoe to drop; that’s it’s inevitable that a monthly Employment Situation report will soon materialize in our inboxes that tells of a sharp correction in the nation’s employment numbers. So far, though, that has not been happening.

The Federal Reserve seems relatively pleased about the manner in which the overall economy is slowing and the labor market is losing some of its froth. It just raised the range for the federal funds rate by another 25 basis points (where 100 bps = 1.00%), but it also indicated that the new level between 5.00% and 5.25% might be where the hikes end.

The Fed may be giving a lot of credence to the lag effect. Housing construction has been simultaneously pulling back with the climb in mortgage rates. But many other aspects of the economy have been tardier in reacting.

The gradual tightening of credit and the narrowing of access to bank loans, exacerbated by three bank failures, are sure to cut into consumer spending. Savings, as a reserve, have fallen way off the peak they reached in mid-pandemic. There’s near consensus among analysts that there will be a couple of rocky quarters for GDP growth as 2023 wraps up and 2024 begins.

The federal funds rate has risen by five percentage points since March of last year. As a consequence, inflation has lost some of its swagger. The year-over-year change in the Consumer Price Index (CPI-U, where the U stands for urban buyers) has receded from +9% to +5%. The price of gasoline is now -17.4% y/y. On the plus side for consumers, a drop in the price of gasoline, because it is such a large part of so many people’s spending habits, is like a tax cut.

The price of food at home in the CPI is +8.4% y/y. While that’s still a horrifying increase for many households, March marked the first month in quite a while when the percentage gain was less than in double digits.

Rent for a primary residence in March was +8.8% y/y. The big increase is in reaction to accommodation being in limited supply, which will be a trigger for an upsurge in multifamily residential construction once the current period of economic unrest and uncertainty passes.

Drawing from the latest Employment Situation report, the total number of jobs in the U.S. construction sector jumped by +15,000 in April, all resulting from work by subcontractors. Residential subcontractor trades took on +16,000 employees and nonresidential subcontractor trades, +11,000. General contractors recorded somewhat offsetting declines in employment.

The NSA unemployment rate in construction is now a mere 4.1%. Again, this is perhaps at odds with what’s appearing in JOLTS. A year ago, construction’s NSA U rate had been 4.6%.

The wage gains being realized by production and non-supervisory workers in the United States (i.e., leaving out bosses) are presently well above historical norms, at +5.0% y/y hourly and +4.0% weekly. Earnings gains "in the old days," both hourly and weekly, were usually between +2.0% and +2.5% y/y.

Construction workers, on the wage front, are really making hay while the sun shines, and as favorable seasonality kicks in. Their April increases were +6.7% y/y hourly and +7.0% y/y weekly.