Despite Strong Gains In April, US Job Growth Is Bound To Slow Later This Year And In 2020

The April jobs report was positive for the equity markets in the sense that it reinforced the idea that the economy doesn’t need the Fed to ride to its rescue with interest rate cuts. Indeed, the American economy seems to have fallen into a rather sweet spot in macro-economic terms, since it is operating at or close to the Fed’s twin goals of maximum employment and price stability.

263,000 new payroll jobs were created in April and the unemployment rate fell to 3.6%, a half-century low. The broader U6 unemployment measure, which accounts for both unemployed and underemployed workers, was unchanged at 7.3% in April.

Payroll employment has risen steadily since the Great Recession ended in 2009, and since then the economy has created more than 20 million jobs.

Still, many economists are justifiably concerned about the number of serious headwinds which could curb US economic growth – for example, a slowdown in Europe, the American trade war with China and of course Brexit. Even though concerns over each of these headwinds are continuing, nonetheless it also seems that the risks have moderated somewhat.

The significant drop in the American unemployment rate to 3.6% in April from 3.8% in the previous month was partly due to a decline in the labor force participation rate, which fell to 62.8% from 63% in March.

In April nearly 500,000 Americans dropped out of the labor force, which means they were not looking for work. A decline in labor force participation is not terribly encouraging, even though the employment outlook is still very robust.

While overall employment is slowing, as one would expect in a nearly fully employed economy, the pace of new hiring is still very impressive considering there have been 103 consecutive monthly increases.

Private payrolls also increased by 236,000 in April, and the gains were very broadly based. Federal government payrolls, which rose by 11,000 in April, was possibly exaggerated on the high side because of early hiring for the 2020 census.

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