The U.S. labor market shows little sign of cooling. The unemployment rate is at its lowest in half a century and jobs have been created for 28 consecutive months, without interest rate hikes preventing it. Available jobs have shrunk, layoffs have risen slightly, but job creation has barely slowed, according to the latest statistics released by the Bureau of Labor Statistics. In April, 253,0000 jobs were created, more than in February or March. The data somewhat complicates the Federal Reserve's plans to pause rate hikes.

The unemployment rate stands at 3.4%, at levels close to full employment. It equals that of January and is the lowest since 1969. Economists had expected it to stand at about 180,000 jobs in April and the unemployment rate to be 3.6%, down from 3.5% in March, when job creation slowed somewhat. Since March 2022, the unemployment rate has only oscillated between 3.4% and 3.7%. The reality has been exceeding forecasts for at least a year.

Employment continued to increase in professional and business services, health care, leisure and hospitality, and social assistance, according to the Department of Labour. In April, the average hourly wage for nonfarm private sector earners rose 16 cents, or 0.5 percent, to $33.36. Over the past 12 months, the average hourly wage has risen 4.4%, up from 4.3% year-on-year in April. The economists' forecast was 4.2%.

According to Federal Reserve Chairman Jerome Powell, reducing inflation is likely to require a period of below-trend growth and some cooling of labor market conditions.

At the press conference on Wednesday, after the tenth consecutive rise in interest rates, Powell conceded that "there are some indications that supply and demand in the labor market are returning to better balance." The activity rate has risen in recent months, especially among people aged 25 to 54. Nominal wage growth has shown some signs of moderation and job openings have declined so far this year, he said. But, overall, the demand for labor still far exceeds the supply of available workers, he added. Friday's figure reinforces those cautions.

Soft landing

The Federal Reserve is trying to restore price stability after inflation topped 9% in June last year, its highest in four decades. In March it had fallen to 5%, after nine consecutive months of decline, but is still well above the central bank's 2% target.

Powell is willing to contain prices even if it means provoking a recession, but on Wednesday he indicated that he is still confident in his chances of achieving the long-awaited soft landing: "It seems to me that it is possible that we will continue to have a cooling in the labor market without having the large increases in unemployment that have accompanied many previous episodes. That would go against history. I fully understand that. That would go against the pattern," he admitted, referring to the fact that such aggressive rate hikes usually leave a high bill in terms of unemployment. "We've raised rates five percentage points in 14 months, and the unemployment rate is 3.5%, more or less where it was, even lower than when we started," he said.

Workers on the roof of a building in Manhattan, New York, on April 11, 2023.Bebeto Matthews (AP)

"I think avoiding a recession is, in my opinion, more likely than having a recession. But I also don't rule out the case of having a recession. We may have what I expect to be a mild recession," he argued.

Powell hinted on Wednesday that the Federal Reserve could pause rate hikes after the 0.25 percentage point rate hike approved at the last meeting. He said, however, that it would depend on the data to be published before the next meeting of the monetary policy committee, on June 13 and 14. The data known today complicates the work of the central bank. If the labor market does not cool, the pause in rate hikes may be delayed or high rates may remain for longer.

Tiffany Wilding, an economist at Pimco, says there are mixed signals. "On the one hand, the resilience of labour markets and the tightness of inflation are compatible with further rate hikes. On the other hand, however, tensions in the banking sector are likely to slow (and potentially substantially) activity in the coming quarters. On net, given the Federal Reserve's risk-management approach to monetary policy strategy, growing downside risks continue to call for caution, and we expect the Fed to keep policy rates steady at its next meeting in June.

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