It has been a crazy first quarter. It is amazing that the economy produced approximately one million jobs during the first quarter of the year. Everyone knew that the pace of job creation was not likely to continue, especially since we have already replaced the number of jobs lost during the pandemic-induced recession – and then some. With the economy near what is considered “full employment,” it is not possible to continue to add over 300,000 jobs per month.
That is why April’s jobs report was important. It not only represented the first look at data from the second quarter, but also gives us a reading of how much the economy might be slowing down as we move through the year. The Fed increased short-term rates by .25% last week. This marked the tenth time in a row they moved rates upward. At this point the consensus is that the Fed is coming to the end of this tightening cycle, but they must see evidence that the economy and inflation are responding.
The increase of 253,000 jobs last month was an indication that the job market is still strong, but slowing from the frantic pace of the beginning of the year — especially considering that the previous two months of job gains were revised down by a total of 150,000 jobs. The 3.4% unemployment rate shows that we are still hovering near the full employment level. Wage gains were up from the previous month. Does this slowing mean that we will be falling into recession? Not necessarily. The best-case scenario is what we would call a “soft landing” – which Chairman Powell indicated this week is a possibility. From this point on, these terms may shape the debate for the rest of the year.