The US labor market is cooling off

Slowing down.
Slowing down.
Image: Reuters/Emily Elconin
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The blistering hot US labor market is showing signs of cooling off. After surging over the winter, growth in hourly earnings is slowing down, to 0.3% in April compared to 0.5% in the previous month, according to the latest US jobs report released Friday. That’s also lower than the 0.4% monthly increase economists were expecting.

While month-to-month the slowdown in wages is tiny, it would add up to a big change if it continued at the current pace over a longer period. To put it into perspective: If the last three months of wage growth were annualized, it would amount to a 3.7% increase in wages. In contrast, the pace of growth during the previous three months would amount to an annualized increase of 5.9%, said Justin Wolfers, an economist at the University of Michigan.

This should be welcome news for policymakers at the US Federal Reserve, who want to see wage growth and job openings go down to cool off inflation. The slowdown in wage growth reduces the chances of the US to entering a wage-price spiral, though it also means workers will lose more of their paycheck to inflation and higher borrowing costs. It’s unlikely this report will change the Fed’s accelerated interest rate hiking.

Strong job growth, lower labor force participation

The jobs report included other signs that the labor market will not grow as quickly as it has in recent months. Labor force participation fell slightly to 62.2% in April, from 62.4% in March.

And while job growth was strong—the economy added 428,000 jobs last month—the Bureau of Labor Statistics revised down the number of jobs added in the previous two month by 39,000. Most industries added jobs—except for construction, which has already recovered the number of positions it had before the pandemic.

Still, the labor market remains tight. Employers still have record numbers of job openings and workers are quitting at a record pace. But as lower wages and inflation puta a dent on demand, businesses may find they don’t need as many new workers.