Hiring increased in April, and the unemployment rate fell to its lowest level in a decade, signs the U.S. economy is rebounding after a lackluster winter.
The unemployment rate dropped 0.1 percentage point to 4.4% in April, matching the low point reached in the last economic expansion in May 2007, not long before a brewing housing bust sent the economy and financial system into a decadelong crisis and recovery.
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The pickup in hiring last month was broad-based, with particularly strong gains in business services and health care.
The falling unemployment rate suggests wage pressures could start to build as businesses compete for scarcer workers, though so far wage increases have been modest. It also means the Federal Reserve is likely to raise short-term interest rates for the second time this year at its next policy meeting in June, and then likely again in September, before beginning to wind down a $4.5 trillion securities portfolio late in the year.
The Fed's objective is to gently pull back the stimulus it pumped into the economy during and after the crisis now that it appears to be on a more even footing. Still, the Fed sees the economy stuck on a growth path of about 2% this year, meaning that officials don't expect to push short-term rates as high as they have tended to go in the past when unemployment was this low.
The Labor Department reported that businesses added 211,000 jobs in April, after adding just 79,000 jobs the month before. The pickup in hiring underpinned projections that economic growth is set for an upturn. Output grew at an annual rate of just 0.7% in the first quarter. After seeing the latest numbers, economists at forecasting firm Macroeconomic Advisers increased their projection for second-quarter growth to 4%.
U.S. stocks rose modestly after Friday's jobs report and some positive corporate earnings. The Dow Jones Industrial Average gained 55.47 points, or 0.26%, to 21006.94. The S&P 500 and the Nasdaq Composite both rose 0.4% to record closes. The yield on the 10-year Treasury note settled at 2.352%, compared with 2.354% on Thursday.
"This is an unambiguously strong economic report and suggests that consumers will have the wherewithal to increase spending in the second quarter," said David Berson, economist at Nationwide Mutual Insurance Co.
The report was greeted as a win by the Trump administration, even though President Donald Trump was a frequent critic of jobs data when he was campaigning for office in 2016. "Steady and sustained increase in job creation equals new paychecks for American workers and income for American families," Labor Secretary Alexander Acosta said Friday.
Mr. Trump tweeted, "JOBS, JOBS, JOBS!"
The economy has added an average 185,000 jobs a month in 2017, roughly matching 2016's pace of job creation and a slower pace than in 2014 and 2015. During former President Barack Obama's tenure, the unemployment rate fell from an October 2010 peak of 10% to below 5%.
The early months of the Trump administration have been a bit of a puzzle to economists because many measures of household, business and investor confidence have surged while growth remained lackluster.
Though it is still early to say momentum can be sustained, some signs that so-called animal spirits are invigorating spending and hiring are emerging.
"I'm excited about the manufacturing environment," said Vicki Holt, chief executive of Proto Labs, a Maple Plain, Minn. company which uses 3-D printing and injection molding to make prototypes for manufacturing customers. It added 17 workers to its staff in April. Ms. Holt said the firm often sees orders increase ahead of a broader improvement in factory output.
"I'm looking forward to seeing a couple more quarters of strength to show this is going to be sustainable," she said.
The company raised wages for its entry-level workers, jobs that typically required a high-school diploma, because a recently opened Amazon.com Inc. distribution center made it more difficult to attract workers. Those jobs now pay about $12 an hour.
In theory, a stronger jobs market should pull nonparticipants off the sidelines, expanding the pool of available workers. But the low unemployment rate now comes with a caveat: A smaller share of Americans are participating in the labor force compared with a decade ago, partly a result of retiring baby boomers. The labor-force participation rate ticked down to 62.9% in April, and it is little changed over the past four years. The rate remains only narrowly above a four-decade low.
As a result, the size of the labor force was virtually unchanged last month, causing employers to draw down the ranks of the unemployed.
So far, there is only modest evidence that the low unemployment rate is putting upward pressure on incomes and inflation. Average hourly earnings for private-sector workers rose 2.5% in April compared with a year earlier. The growth rate of pay increases has slowed in recent months but remains near the fastest pace since the recession ended.
Consumer prices have grown nearly as fast, meaning inflation-adjusted wages are little changed.
One explanation for why wages haven't grown even faster is worker productivity has declined so far this year. Low productivity makes it difficult for businesses to generate higher profits, invest and raise workers' pay.
Another reason could be some underlying slack remaining in the labor market. An alternative measure of unemployment and underemployment, which includes those who have stopped looking and those in part-time jobs who want full-time positions, was 8.6% in April. While the lowest since 2007, it remains slightly elevated above prerecession levels.
But the smaller spread between the alternative measure and the more broadly reported rate suggest that the slack is diminishing.
Softening wage growth could prove temporary, if employers start to struggle to find qualified workers.
"The labor market is very tight and increases the chance of an acceleration in wage inflation in the near term," said Mickey Levy, economist at Berenberg Capital Markets.
Another factor influencing broader wages is better hiring in lower-wage sectors. There was strong April hiring in the leisure and hospitality category, which includes restaurants. And retail jobs increased after two monthly declines. Wages in the hospitality category grew 4.3% from a year earlier last month, suggesting tightness at the lower end of the market.
Bri Ortega, an office manager at Tiff's Treats in Round Rock, Texas, recently received a $1-an-hour raise. The chain of 28 cookie-delivery shops raised pay for all of its roughly 500 employees in an effort to retain workers. The 25-year-old said it was the largest single raise she has ever received in about seven years of working at various retailers and restaurants. "It makes a big difference," she said. "You can spend a little more on extras, like a vacation."
Write to Eric Morath at email@example.com
(END) Dow Jones Newswires
May 05, 2017 18:23 ET (22:23 GMT)