A stronger-than-expected employment report Friday eased concern that the U.S. economy might slip toward recession, yet clouded the waters about when the Federal Reserve would raise borrowing costs.
Employers added a solid 223,000 jobs in April, the Labor Department reported, and the unemployment rate fell to 5.4 percent from 5.5 percent, reaching the lowest level since May 2008, as the Great Recession was just setting in.
All eyes were on the latest jobs report because barely a pulse was recorded for the U.S. economic growth from January to March. In fact, a steep climb in the trade deficit, reported earlier in the week, had prompted concerns that, when revised May 29, first-quarter growth might be negative.
If the economy shrank over the first three months of 2015, could a recession be in the offing? Friday’s number suggested the answer is no — even through job growth has clearly slowed.
“April job growth was decent, but a big step down from the gains the economy was producing late last year,” said Mark Zandi, chief economist with forecaster Moody’s Analytics. “Job growth was hurt by very bad weather early in the year, but it is also struggling with the ill effects of the lower oil prices on the energy industry and the strong value of the dollar on manufacturing.”
Those headwinds to growth from the strong dollar and oil-sector turmoil might last into the summer, he suggested, but “job growth will re-accelerate in the second half of the year. By this time next year the economy will be operating at full employment and wage growth will be much stronger.”
The White House was more cautious.
“This report largely reflects the ongoing recovery, but jobs in April were likely also boosted by a temporary bounce-back from winter weather,” Jason Furman, head of the White House Council of Economic Advisers, said in his blog.
Speaking Friday in Beaverton, Ore., President Barack Obama cited the April numbers and credited his economic policies for 62 consecutive months of hiring.
“That’s 3 million more jobs just over the past 12 months,” Obama said.
While the unemployment rate is nearing the level the Fed considers healthy, many other signs suggest that the job market isn’t fully recovered. The number of full-time workers, for example, fell in April while the number of part-timers jumped more than 400,000 to 27.7 million— a half-million more than a year ago.
The increase came from Americans who said they preferred part-time work, the report said.
A major question for jobs and the economy is when the Federal Reserve will begin raising its benchmark lending rate, which has been anchored near zero since December 2008. When it begins lifting the federal funds rate, the Fed will trigger an increase in borrowing costs for consumers and businesses alike.
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For more than a decade, policymakers have tried to keep U.S. borrowing costs at historic lows in an attempt to stimulate the economy. It’s led to distortions in the pricing of stocks and bonds, and financial markets fret about the transition when it ends. Financial turmoil might weigh on hiring and economic growth later this year.
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Friday’s jobs numbers were viewed as increasing the likelihood that the Fed, which is considering whether the economy is strong enough to withstand rate hikes, will start down that road in September.
“We are sticking with our baseline forecast of September for the first rate hike, but the odds of December, or even later, are growing,” wrote economists at Bank of America Merrill Lynch.
An improving labor market is just one of several factors the Fed is considering. Inflation has been subdued, leaving room for further delay on hikes, and income growth has been lackluster. Hourly earnings increased a hair in April and year over year they grew by 2.2 percent, according to the Bureau of Labor Statistics. That doesn’t point to a tight labor market in which workers can demand higher wages.
“Our economy is at a crossroads. The recovery is continuing and more people are finding jobs. But wages remain stagnant and working families are struggling to scrape by,” Bill Spriggs, chief economist of the AFL-CIO, said in a statement on Friday’s report.
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Manufacturing disappointed in April, adding just 1,000 jobs.
“There have been a number of significant head winds buffeting the U.S. economy in the early months of 2015, including a strong dollar, slowing growth abroad, lower crude oil prices, residual effects from the West Coast ports slowdown, a cautious consumer and weather,” said Chad Moutray, chief economist for the National Association of Manufacturers. “Each of these challenges has dampened overall activity in the sector, including employment growth.”
The professional and business sector sat atop the report, adding 62,000 jobs. These are often better-paying white-collar jobs. The health care sector added more than 45,000 positions, good news if continued through 2015 because hiring had slowed over the past year.
The hard-hit construction sector, battered over the winter, added 45,000 jobs in April.
“Construction employment resumed strong growth in April after slipping in March and is now growing at more than double the growth rate for total non-farm employment,” said Ken Simonson, chief economist for Associated General Contractors of America. “Nevertheless, job growth remains spotty, with the nonresidential building sector losing jobs even as other construction sectors expanded.”
Mining, which includes oil and natural gas extraction, shed 15,000 jobs in April and another 10,000 support positions. That’s in line with the steep drop in oil prices, which led producers to cut back on drilling operations.
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