Persistent inflation contributed to slower than expected job growth in April

The U.S. job market slowed in April in response to persistently high interest rates. The economy added 175,000 jobs last month, which was significantly fewer than the 233,000 economists had predicted.

“Certainly a cooler jobs report than we’ve seen,’’ Michael Pugliese, senior economist at Wells Fargo, told the Associated Press. “But it’s not like it was disastrous: 175,000 is still pretty strong, and unemployment below 4% is still pretty healthy.’’

The slower-than-expected job growth was welcome news to the Federal Reserve, which has kept interest rates at a two-decade high to fight inflation. Hourly wages rose 0.2% from March to April and 3.9% from a year earlier, which was the smallest annual gain since June 2021.

“A slowdown in payrolls to a decent pace to start the second quarter, coupled with a slowing in wage gains, will be welcome news to (the Fed’s) policymakers,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics. “Current readings also support the view that rates cuts — and not hikes –- are the base case scenario for the Fed this year.”

Hiring trends varied by industry:

• Health care companies added 56,000 jobs; warehouse and transportation companies hired 22,000 new workers; and retailers added 20,000.
• Government at all levels, which had been hiring aggressively, added just 8,000 jobs in April, the lowest monthly total since December 2022.
• Temporary jobs fell by more than 16,000. These positions often are seen as a potential indicator of where the job market is headed, because companies sometimes try out temps before committing to full-time hires.

The job market has been showing other signs of eventually slowing. This week, for example, the government reported that job openings fell in March to 8.5 million, the fewest in more than three years. However, before 2021, monthly job openings had never topped eight million, a threshold they have now exceeded every month since March 2021.

Related: Job market rebounds: Report shows strong demand, low volatility

Although April’s job gains could be seen as disappointing when measured against much higher numbers in previous months, “this is a much more sustainable pace,” Thomas Simons, U.S. economist at Jefferies, told The Wall Street Journal. “I think this is probably something the Fed wants to see.”

Fed Chair Jerome Powell repeatedly has said he is happy that the labor market remains in good shape and that inflation can come back down to the Fed’s target without a big increase in unemployment. Even so, a recent run of hotter-than-anticipated inflation has tempered previous optimism that the economy is on a glide path to a soft landing, where inflation would return to 2% without a recession. Some economists have worried that the strength of the job market could help keep inflation elevated by preventing a further slowdown in wage growth.