• Although job growth was stronger than expected in April at 253,000, with downward revisions to the two prior months job growth is slowing in 2023.
• The unemployment rate fell to a more than 50-year low in April.
• Wage growth was strong, indicating continued inflationary pressures from the labor market.
• PNC expects the FOMC to hold the fed funds rate steady through the rest of 2023, with a mild recession starting later this year.

The US economy added 253,000 jobs in April, according to a survey of employers from the Bureau of Labor Statistics, well above the consensus expectation of 180,000. However, there were substantial downward revisions to job growth in February and March, with average gains over the past three months of 222,000. This is down from around 300,000 at the end of 2022 and indicates that monetary policy tightening is weighing on the labor market.

The unemployment rate fell to 3.4% in April from 3.5% in March. Outside of a 3.4% rate in January 2023, this is the lowest unemployment rate since 1969. The unemployment rate declined due to a solid increase in employment in a survey of households (different from the survey of employers) of 139,000, along with a small contraction in the labor force. The labor force participation rate held steady in April at 62.6%. This is up slightly from earlier this year but is below the 63%+ rate pre-pandemic.

The private sector added 230,000 jobs in April, with an increase in government employment of 23,000. Employment rose in goods-producing industries by 33,000 in April, with increases for both construction and manufacturing, more than making up for a decline of 17,000 in March. Private services-providing industries added almost 200,000 jobs in April. Employment in temporary help services has fallen for three straight months; this is a leading indicator for overall job growth.

One bit of bad news on the inflationary front was an increase of 0.05% in average hourly earnings, an acceleration from 0.03% growth in March. Average hourly earnings were up 4.4% on a year-over-year basis in April, too hot from the Fed’s perspective.

The job market is definitely slowing in 2023, although it is still running too strong from an inflation perspective. The Federal Open Market Committee would like to see a bit more slack in the labor market, with job growth of below 200,000, an unemployment rate close to 4%, and annual wage growth of around 3.5%. The question is whether the FOMC thinks that the monetary policy tightening over the past couple of years will be enough to achieve this, or if the FOMC sees the need to raise rates further in an attempt to cool off the job market.

Right now, PNC’s forecast is that the FOMC keeps the fed funds rate, its key policy rate, in its current range of 5.00% to 5.25% throughout the rest of 2023. Given the lag between monetary tightening and slower growth, the labor market should further soften in the near term. PNC expects a mild recession starting in the second half of 2023, with job losses later this year and a rising unemployment rate. That being said, this job report is consistent with a soft landing, in which the economy slows and the labor market cools off to a more sustainable pace, but without a recession.

The PNC Financial Services Group, Inc. is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance, and asset-based lending; wealth management and asset management. For information about PNC, visit www.pnc.com.