Chart of the Week: Monthly Payroll Growth, Unemployment Rate and Average Hourly Earnings
(Image courtesy of MBA)
The April Employment Situation report showed that the job market continues to hold up. The pace of job growth slowed in April to a 177,000 gain, down from a downwardly revised 185,000 gain in March, but above the 152,000 average gain over the past 12 months. The unemployment rate was steady at 4.2%. While the unemployment rate has not increased in recent months, it is higher than levels from 2022 to 2024, and the duration of unemployment spells continues to increase. For those who have lost jobs, it is tougher to find a new one, given the declining number of job openings and slower pace of hiring.
Wage growth held steady at 3.8% on an annual basis in April, continuing a gradual slowdown that started in 2023. This cooling in wage growth is consistent with lower hiring and fewer job openings. Job gains were concentrated in just a few sectors, including health care and transportation and warehousing. We expect transportation and warehousing jobs are at risk as the tariff effects kick in. Federal government employment decreased by 9,000 in April and is down 26,000 this year. Given the plans for further reductions and budget cuts, it is likely that this category will also shrink in the months ahead.
While the job market remains somewhat resilient, economic growth was negative in the first quarter of 2025, the first negative reading since 2022, as businesses rushed to import goods before tariffs went into effect. In addition to the pullback in activity, inflation readings increased relative to the prior quarter, so both growth and inflation were headed in the wrong direction.
The data showed a slower 1.8% growth rate for consumer spending, with a reduction in spending on motor vehicles and parts compared to last quarter. Households were getting more cautious with respect to larger purchases even in advance of the tariff announcements.
The biggest drag on growth was a more than 50% increase in imported goods, which subtracts from growth in the GDP calculation. The surge in imports subtracted more than 5 percentage points from growth. More than 2 percentage points of this was offset by a big jump in nonfarm inventories, as businesses were rushing to get goods into the country ahead of tariff implementation and were willing to store them until they were needed for production.
The quandary facing the Federal Reserve is that while the trend in the data is clearly showing a slowing economy, there is renewed upward pressure on inflation. We expect that the Fed will hold rates steady at its meeting next week and will indicate that it will continue to hold at this level until it becomes clear whether a recession or inflation is the bigger risk. Mortgage rates are likely to stay within their current range as well, but the economic uncertainty and rate volatility has started to weigh more heavily on housing activity.
–Mike Fratantoni (mfratantoni@mba.org), Joel Kan (jkan@mba.org)
