Employment Growth Continued in April, Amid Tightening Monetary Policy

428,000 Jobs Added in April as Unemployment Rate Remained at 3.6%

Zions Bank May 6, 2022

The U.S. economy continued its steady growth in April, adding 428,000 jobs. The labor market has now added more than 400,000 jobs a month for 12 consecutive months. The unemployment rate remained at 3.6%. Wage growth moderated slightly, to 5.5%, which is a good sign that wage inflation is not overheating. However, labor force participation unexpectedly dropped in April to 62.2%, showing that the strong labor market is failing to attract as many workers to return.

Top Takeaways from the Report

Labor Market Strength Continued in April

Strong job growth continued in April, with 428,000 jobs added in the month. This is roughly in line with expectations and it represents the 12th consecutive month that the economy has added more than 400,000 jobs. The labor market has now recovered nearly 95% of the 22 million jobs lost during the COVID pandemic and is 1.2 million jobs below the pre-pandemic high of early 2020. If this growth continues the labor market could surpass its previous peak by this summer.

The unemployment rate remained at 3.6% in April, which is just above its pre-recession low of 3.5% in early 2020. This rate somewhat masks the struggle employers are facing to find workers. In a separate report, the Labor Department said that there were a record 11.5 million job openings earlier this spring. There are now approximately two job openings for every unemployed worker.

While most of the April jobs report came in strongly, the labor force participation rate unexpectedly dropped to 62.2% in April, from 62.4% in March. It is surprising to see a reduction in labor participation when demand for labor is so strong and it is another sign that employers are still struggling to get the workers they need. 

Wage growth softened slightly last month, with month-over-month average hourly earnings slowing from 0.4% in March to 0.3% in April. On a year-over-year basis, wage growth slowed from 5.6% in March to 5.5% in April. While the change is small this is a positive sign that wage inflation is not accelerating to the degree we’ve seen for the past year. One of the fears lately is of a wage-price spiral, in which higher wages drive prices higher. However, the April wage increases are a further sign that wage growth is not keeping up with inflation, and real wages continue to be negative. Ultimately, both wage growth and price increases need to slow down to around 2-3 percent if the economy is going to return to normal.

Price increases continue to loom over other economic indicators and are having an enormous impact on all sectors of the economy. The Consumer Price Index surged again in March, increasing 8.5% over the last year. This is the highest inflation since 1981. Even if volatile food and energy prices are stripped out, core inflation still increased 6.5%, which is more than three times as high as the Federal Reserve’s target of 2% annual inflation. Price increases are expected to peak in the next few months and start slowing, but they will struggle to return to normal levels.

Growth by Industry

Total nonfarm payroll employment increased by 428,000 in April. The private sector added 428,000 jobs (goods 66,000 and services 340,000), while the public sector, or government, added 22,000 (federal -6,000, state 7,000, and local 21,000). Despite April’s increase, employment is still down by 1.2 million, or 0.8 percent, from its pre-pandemic level in February 2020.

Trade, transportation, and utilities led the way for employment growth, adding 104,000 jobs during April. Wholesale trade added 22,200, while retail trade increased by 29,200. Additionally, transportation and warehousing employment rose by 52,000, and utilities added 300.

The leisure and hospitality sector followed next by adding 78,000 jobs during April. At the subsector level, arts, entertainment, and recreation added 11,300, while accommodation and food services added 66,100 jobs.

Other notable employment gains during April occurred in education and health services (59,000), manufacturing (55,000), professional and business services (41,000), and financial activities (35,000).

The Bottom Line

The Federal Reserve continued its path of interest rate increases in its latest meeting. The Fed increased the Federal Funds Rate by 0.5%, the largest increase in 20 years, and indicated that more rate increases are on the way. Rates may need to increase another 2% over the next year to bring down inflationary pressures. The Fed also announced that it will begin reducing the size of its balance sheet at the beginning of June. The hope of these actions is that economic growth and inflation will slow and the Fed will be able to orchestrate a “soft landing” of the economy.

Unfortunately, this will be a difficult task for the Fed to achieve. Last year the Fed failed to take proactive steps to address surging inflation and is now behind the curve. While the Fed has been able to orchestrate soft landings in the past, they were during periods of low inflation. The Fed has not historically been able to bring down high inflation while also avoiding a recession. Jerome Powell, the Chair of the Federal Reserve recently acknowledged that there may be some pain associated with curbing inflation and reducing consumer demand but he insists that the economy is strong and will remain resilient. The April jobs report adds some credibility to Mr. Powell’s argument, but the next few months will be critical to the ultimate economic outlook.


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