Fed Chair Jerome Powell thinks a recession scenario is less likely.
(Photo: IMAGO/Xinhua)
Washington Despite the series of rate hikes by the central bank, the US job engine is still running at full speed. In April, 253,000 new jobs outside of agriculture were added, as the government in Washington announced on Friday. Economists surveyed by the Reuters news agency had only expected an increase of 180,000.
However, the increase in jobs in March was not as strong as originally reported – the number was reduced by the ministry to 165,000 from 236,000. The separately calculated unemployment rate also fell to 3.4 percent in April from 3.5 percent in March. Experts had expected a slight increase.
unemployment rate falls
“It cannot be denied that the labor market is still very tight,” concluded Commerzbank experts Christoph Balz and Bernd Weidensteiner. As a result, significantly more jobs would continue to be created when new people entered the labor market: “The unemployment rate has fallen again accordingly – it was last lower in 1953,” explained the bank economists.
The labor market in the US is proving to be surprisingly resilient, says Helaba economist Ulrich Wortberg. In view of a job growth of more than 250,000 and a declining unemployment rate, one cannot speak of a weakness. As a rule of thumb, an increase of 70,000 to 100,000 jobs per month is sufficient to provide jobs for the growing US working-age population.
The Federal Reserve has pushed interest rates from near zero to a range of 5.00 to 5.25 percent since early 2022 in a bid to stem high inflation and cool the overheated labor market. Now she’s heading for a break. Even if higher interest rates are already dampening economic output, Fed Chair Jerome Powell believes a recession scenario is less likely. Should it nevertheless come to that, he is counting on a mild course – also with a view to the development on the labor market.
Wage growth picks up
On inflationary pressures, the Fed is also turning its attention to wage growth. Average hourly wages increased by 4.4 percent year-on-year in April, after 4.3 percent in March. Experts polled by Reuters had only expected an increase of 4.2 percent.
The situation on the US job market is only cooling off very slowly, says economist Bastian Hepperle from Hauck Aufhäuser Lampe Privatbank: “Patience is required until the cooldown is reflected in weaker wage developments. This prevents a greater drop in pressure in the inflation pipeline.” The Fed will therefore continue to flirt with an interest rate pause, but not yet say goodbye to it.
Inflation fell a full point to 5.0 percent in March, the lowest level since May 2021. The Fed can take this as a partial success, but the 2.0 percent inflation target is still a long way off. After the latest interest rate decision, Powell emphasized that inflationary pressures are still high. There will probably still be a long way to go before the target is reached.
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