April job gains send U.S. unemployment rate to 7-year low
A stronger-than-expected employment report Friday eased concern that the U.S. economy might slip toward recession, yet clouded the waters about when borrowing costs might rise across the U.S. economy.
Employers added a solid 223,000 jobs in April, the Labor Department reported, and the unemployment rate fell a bit, to 5.4 percent. All eyes were on the jobs report because barely a pulse was recorded for U.S. economic growth from January to March.
In fact, the steep climb in the trade deficit reported earlier in the week had prompted concerns that, when revised May 29, first-quarter growth might be negative. If the economy shrank over the first three months, could a recession be in the offing? Friday’s number suggested the answer is no.
“April job growth was decent, but a big step down from the gains the economy was producing late last year,” said Mark Zandi, chief economist with forecaster Moody’s Analytics. “Job growth was hurt by very bad weather early in the year, but it is also struggling with the ill effects of the lower oil prices on the energy industry and the strong value of the dollar on manufacturing.”
Those head winds to growth might last into the summer, he suggested, but “job growth will re-accelerate in the second half of the year. By this time next year the economy will be operating at full employment and wage growth will be much stronger.”
The White House was more cautious, in part because April’s numbers reflected a bounce-back.
“This report largely reflects the ongoing recovery, but jobs in April were likely also boosted by a temporary bounce-back from winter weather,” Jason Furman, head of the White House Council of Economic Advisers, said in his blog.
A major question for jobs and the economy is when the Federal Reserve will begin raising its benchmark lending rate, which has been anchored near zero since December 2008 amid financial crisis. When it begins lifting the federal funds rate, the Fed will trigger an increase in borrowing costs for consumers and businesses alike on mortgages, loans for autos and other big-ticket items.
Friday’s jobs numbers were viewed as increasing the likelihood that the Fed, which is considering whether the economy is strong enough to withstand rate hikes, will start down that road in September.
“We are sticking with our baseline forecast of September for the first rate hike, but the odds of December, or even later, are growing,” wrote economists at Bank of America Merrill Lynch.
An improving labor market is just one of several factors the Fed is weighing before raising rates. Inflation has been subdued, leaving room for further delay on hikes, and income growth has been lackluster. Hourly earnings increased a hair in April and year over year they grew by 2.2 percent, according to the Bureau of Labor Statistics. That doesn’t point to a tight labor market in which workers can demand higher wages.
This story was originally published May 8, 2015 at 11:04 AM with the headline "April job gains send U.S. unemployment rate to 7-year low."