The Blubber

In April, U.S. employers added a substantial 253,000 jobs, demonstrating the resilience of the labor market despite challenges such as rising interest rates, persistent inflation, and a banking crisis with the potential to impact the economy. The unemployment rate declined to 3.4%, equaling a 54-year low. The number of jobs added in April compares favorably to the 165,000 jobs added in March and the 248,000 added in February, indicating a healthy job market by historical standards.

Despite the Federal Reserve's assertive interest rate hikes over the past year to combat inflation, the job market has remained resilient. Layoffs are relatively infrequent, and job openings remain high. However, the Fed's actions have led to higher borrowing costs, which have adversely affected certain sectors, such as the housing market.

Inflation, which reached a 40-year high last year, has gradually moderated but remains significantly above the Fed's 2% target.

Fed Chair Jerome Powell expressed some bewilderment at the job market's endurance this week. The central bank is concerned that a strong job market could lead to higher wages and prices, and it aims to achieve a "soft landing" by tempering the economy and labor market enough to control inflation without causing a recession.

Powell has suggested that one approach to achieving this balance is for employers to reduce the number of job openings. Consistent with this, the government reported that job openings decreased to 9.6 million in March, down from a peak of 12 million in March 2022 and the lowest in nearly two years.

While Powell expressed optimism that the U.S. could avoid a recession, some economists remain doubtful and anticipate an economic downturn later this year.

The Fed may find encouragement in the fact that more Americans are seeking employment. An increased labor supply can reduce the need for employers to raise wages.

However, the economy faces headwinds, including the impact of rising borrowing costs on the housing market, with existing home sales down 22% in March year-over-year. The manufacturing sector is also struggling, with an index from the Institute for Supply Management indicating contraction for six consecutive months.

Consumer spending, which accounts for approximately 70% of economic activity, has shown signs of weakening, with retail sales declining in February and March.