By Howard Schneider

WASHINGTON, (Reuters) – Jerome Powell, the Chair of Federal Reserve, presented this week a vision for the U.S. labor market. It included a growing labor participation rate which would allow for job growth and slow down wage rises.

He said that more Americans would be entering the workforce after a policy meeting of two days. This will help the U.S. Central Bank to manage high inflation while reducing unemployment.

The Friday release of the Labor Department’s April Nonfarm Payrolls Report by the Labor Department showed little evidence that Powell’s message was being received. Businesses added 428,000 more jobs while the labor force declined. Meanwhile, wages rose at a fast, 5.5% annual rate.

Economists believe the Fed’s chief wants to see the beginning of an adjustment in the report.

GROWTH OF EASING WAGE, STRONG JOB GAINS

After all, the Fed desires more people to work each month. It is encouraging that, in spite of the ongoing discussion about how businesses struggle to hire people for the next 12 months, payrolls have risen by more than 400,000.

With just 1.2million positions remaining to meet that goal and only 500,000 jobs in the private sectors, the U.S. was one step closer to regaining its pre-pandemic unemployment level. This year, the nation may return to its trend levels. It means more households earning more and an economy that is more resilient.

Graphic- The jobs hole facing Biden and the Fed: https://graphics.reuters.com/USA-ECONOMY/JOBS/jbyprzlrqpe/chart.png

Powell is even more pleased with the pace of monthly wage growth. It is now at an average of 0.3% for the past three month, which is one of the lowest rates in a whole year.

Today’s employment report supports a soft landing scenario. Ellen Gaske (lead economist, PGIM Fixed income) said that there have been solid job gains but we’re also seeing a moderated increase in hourly earnings. We’ve reversed the increase in employment that was seen towards the end last year.

Graphic- Wage growth moderates: https://graphics.reuters.com/USA-FED/JOBS/klpyklrglpg/chart.png

PEAK MISMATCH

Powell’s focus was on Powell’s outsize number of job opportunities compared to the ranks of unemployed. This mismatch is historic in proportions, with almost two vacant jobs for every person unemployed.

Gaske believes this to be almost certain tied to COVID disruptions and equally disruptive reopening.

She noted that “if you want to open your doors you needed to hire someone,” which also meant companies were “pretty sensitive to wage increases”.

The dynamics could be changing at this stage, especially with market volatility and high inflation leading to greater caution in hiring decisions.

UKG, a payroll company that monitors shift work in realtime, reported that demand for workers dropped in several industries in late April after Labor Department reports for the month had been released.

This could indicate a slowdown in job growth from about half a million jobs per month at the beginning of 2021, to around 178,000 per month during the period before the pandemic.

Vice president of UKG Dave Gilbertson stated that “What we’ve seen” is an acceleration towards the downside in the last couple weeks.

Sophia Koropeckyj (NYSE: Moody’s Analytics) forecasted that Moody’s monthly job growth would drop to approximately 200,000 by this year’s end.

We have fewer bodies

There was a slight decrease in participation in the labor market to 62%, compared with 62.44% in March. This is in addition to the decline of close to 400k in those either looking or working, which were both a setback.

Although the participation rate has been improving steadily over the past months, it is still below the level before the pandemic.

Nick Bunker, Indeed Hiring Lab’s economic research director, stated that the data needs to be seen in light of an increase in labor supply. Bunker described a “silver Lining” in the rise in employment rates for the 55-64 age group, as well as gains for the younger “prime” workers, who could see their participation completely recovered this summer.

However, it adds a cautionary note about the future. We may see more wages being paid for fewer people on the job market. The U.S. has a historically low unemployment rate at 3.6%. Inflation is a problem that the Fed has had to deal with in the past without causing joblessness.

Graphic- https://graphics.reuters.com/USA-FED/JOBS/gdpzymnnavw/chart.png

Aneta Markowska from Jefferies believes the market for jobs is strong at the moment and that unemployment will decline to 3% before December. She also projects wage growth to accelerate to 6.6%. Inflation will not be a factor.

In an analysis of Friday’s jobs report, she stated that “Under the noise, labor market is still very hot” and would likely get hotter.