U.S. Employment (April 2023)

Job growth surprised to the upside in April, but prior months see sizeable downward revisions 

• The U.S. economy added 253k jobs in April, well above the consensus forecast of 180k. Revisions to the two months prior were significant, subtracting 149k from the previously reported figures. Hiring over the last three-months averaged 222k, a meaningful stepdown from the 295k registered in March.  
• Employment gains on the service side (+197k) were concentrated in healthcare (+64k), professional & business services (+43k) and leisure & hospitality (+31k). Goods producing industries (+33k) added jobs on the month, with both construction (+15k) and manufacturing (+11k) chipping in with modest gains. Hiring across the public sector moderated, but still added 23k jobs. 
• In the household survey, civilian employment rose by a modest +139k, while the labor force shrank by 43k, resulting in the unemployment rate falling by 0.1%-pts to 3.4%. The participation rate held steady at 62.6%.
• Average hourly earnings were up 0.5% month-on-month (m/m) – accelerating from March's gain of 0.3% m/m. Both the 12 and 3-month (annualized) moved higher, rising to 4.4% and 4.2%, respectively.

Key Implications

• Job growth accelerated in April, but there were certainly some indications in the report suggesting that the labor market is softening. Revisions to the two prior months were significantly lower, which after smoothing through the monthly noise, the three-month moving average shows the pace of hiring has continued to decelerate. Moreover, the breadth of hiring – while having ticked higher in April – remains well below year ago levels. 
• The uptick in average hourly earnings comes as little surprise. We have been saying that the recent downward drift in average hourly earnings is likely more to do with the fact that this measure doesn't adjust for compositional shifts in the labor force. This distinction has been particularly key in recent months where leisure & hospitality– one of the lowest paying industries – has accounted for an outsized share of recent job creation. But with its contribution having significantly receded last month, we were bound to some acceleration in wage growth. 
• Taking this morning's report in conjunction with other recent labor market metrics (e.g., rising jobless claims, downward trend in job openings, and the uptick in layoffs) there are certainly some early signs of softening in the labor market. However, it's unclear if things are progressing fast enough. The FOMC has left the door open to another rate hike in June, and they may need to follow through on that if we don't see a more meaningful cooling in labor market conditions over the next few months. Let's see what next week's inflation report brings!  

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