Weekly Economic Trends and Indicators
The Headline:
Last Friday, the Bureau of Labor Statistics (BLS) reported that nonfarm payroll employment increased by 175,000 in April. Also, employment numbers for February and March were reduced by a combined total of 22,000. The market was expecting at least 225,000 new jobs. The unemployment rate was little changed at 3.9%. For the past several months, the unemployment rate has fluctuated between 3.7 and 3.9%. Average hourly earnings rose about 0.2% ($34.75) while average hours decreased by 0.1 hour (34.3 hours)
In a separate report, the BLS reported on payroll jobs for March for metropolitan areas including the Quad Cities metro area. Total nonfarm payroll employment in the QC was an estimated 179,800 in March, which was down about 2500 from a year ago. The local unemployment rate decreased from 4.8% in February to 4.6% in March.
The Details:
Employment growth at the national level was strongest in health care, social assistance, and transportation and warehousing. Nationally, manufacturing was among industries in which jobs were essentially unchanged. Locally, trade, transportation, and utilities, government, and other services topped the list of job creation over the last year. Professional and business services continue to shed jobs. Manufacturing job numbers are decreasing very slowly locally and are still above pre-COVID levels, having fallen from a decade-high peak at the end of 2022.
The Context:
This was not the weakest job report in the post-COVID recovery, but it is significant that it came in well below expectations at a time when worries of renewed inflation were starting to rattle the markets. As expected, the Federal Reserve held their policy interest rate steady once again last week, though in the post-meeting press conference, Chair Jerome Powell kept the door open for rate cuts later in the year. As of May 6th, the probability of a rate cut in July or September had increased slightly compared to the prior week according to the CME FedWatch Tool.
As one might expect when both GDP and employment both come in below expectations within a week of each other, talk of recession started to resurface after being forgotten for most of the last several months. There are many people who believe that a decline in GDP is necessary in order to get inflation down and that holding interest rates higher for longer will certainly cause that decline in GDP which, if prolonged, would become a recession.
However, it is possible to avoid a recession in this type of situation. The key is to have strong productivity growth. Growth of productivity allows inflation to come down without requiring a large decline in economic growth. Productivity growth is the cushion that can give the economy a “soft landing.” Because of the importance of productivity in light of recent employment and GDP data, we will take up this topic next week.
Next week: Productivity update
