April hiring beat expectations, but economists warn the labor market is ‘frozen’

By Alicia Wallace, CNN

(CNN) — The US economy added a stronger-than-expected 115,000 jobs last month and the unemployment rate stayed at 4.3%, an indication of resilience at a time when war and high gas prices loom large.

April’s employment gains mark an expected retreat from March, when a revised 185,000 jobs were created, boosted by factors such as the end of large labor strikes as well as favorable weather, according to Bureau of Labor Statistics data released Friday.

However, the job growth seen last month was much stronger than the 65,000 that economists had estimated. No change in the unemployment rate was anticipated as factors such as aging demographics, an immigration slowdown and technology adoption have contributed to a slower-moving jobs market.

White House National Economic Council director Kevin Hassett touted the better-than-expected jobs numbers in an interview Friday, saying April’s job market gains represent “absolutely blockbuster numbers,” in an interview with Fox News. However, he acknowledged steep headwinds for the economy as the war with Iran trudges on, with gas prices still hovering nationally at $4.55 a gallon Friday.

However, economists cautioned that the solid-looking topline employment numbers mask underlying weakness in the labor market.

“Half of the job gains came from retail and transportation and warehousing; those are sectors that do not consistently add jobs,” Kory Kantenga, LinkedIn’s head of economics for the Americas, told CNN in an interview. “We’re still creating enough opportunities to keep people generally employed; that said, we still don’t see any momentum in the labor market.”

The ongoing war in Iran and the ripple effects from sharply higher energy and gas prices also serves as causes of concern, he said.

Where jobs were gained, lost

Healthcare and social assistance – an industry buoyed by an aging population – was once again a leading driver of job gains, adding an estimated 53,900 positions last month.

Another 52,100 jobs came from the transportation and warehousing industry (+30,300 jobs) and retail (+21,800 jobs).

Leisure and hospitality and other services – industries that could be the first to show the effects from a broader pullback in consumer spending – added 14,000 jobs and 10,000 jobs, respectively.

The labor market remains in a “low-hire, low-fire” mode, but some industries have been shedding jobs more than others. Layoffs have picked up speed in the tech industry, with many job cuts being attributed to a greater shift toward investment in artificial intelligence technologies.

In April, the tech-heavy information sector lost 13,000 jobs. Financial activities (down 11,000), government (down 8,000) and manufacturing (down 2,000), also posted losses.

It’s the first month of back-to-back job gains in more than a year, as uncertainty and other factors have rattled the labor market. The monthly payroll numbers have been especially volatile through the first part of this year – in part due to weather, labor strikes and methodological changes.

When smoothing out that volatility, monthly job gains are running at a three-month average of 48,000. Year-to-date, that pace is 76,000 jobs per month.

War impact still looms

While the war in the Middle East wasn’t expected to negatively affect April’s employment numbers, it still presents a risk: The health of the US labor market and the broader economy could be negatively affected if gas prices stay persistently high and cut into consumer spending, raise business costs, as well as trickle into higher prices for other goods and services.

Leisure and hospitality and other services – industries that could be the first to show the effects from a broader pullback in consumer spending – added 14,000 jobs and 10,000 jobs, respectively.

Hiring decisions take a few months to come to fruition, and the early economic data doesn’t yet show that Americans have made significant cutbacks. Consumers’ coffers have been buffered by larger tax refunds, wage gains (although slowing), and wealth boosts (particularly for upper-income consumers).

That could change, especially if their earnings are eaten away by inflation.

In April, average hourly earnings rose 0.2% to put the annual rate of pay gains at 3.6%, landing it above inflation – for now.

The April Consumer Price Index, the most widely used inflation gauge, is expected to show that the annual rate of inflation accelerated to 3.9% from 3.3% in March, FactSet consensus estimates show.

Inflation picking up speed could exacerbate longstanding affordability concerns that have heavily weighed on Americans, especially those with little to no wiggle room in their budgets.

A separate report Friday showed that consumer sentiment sank to a fresh record low in April.

“The headline numbers on the US economy and on the labor market look better than they obviously feel to the overwhelming majority of both consumers and workers,” Diane Swonk, chief economist at KPMG, said in an interview. “And there’s a reason for that when you look under the hood of the job numbers.”

She added: “There’s a lack of churn in the labor market, a sort of suspended animation that is not healthy.”

A labor market in ‘suspended animation’

The jobs report – literally a tale of two surveys: one of businesses and the other of households – told two different stories for April.

“We’re starting to see this divergence again between the household survey and the establishment survey, and you can reconcile those two by accounting for people who may have multiple jobs or they’re on multiple payrolls, but we are still seeing that divergence,” LinkedIn’s Kantenga said. “The household survey is much weaker.”

The two surveys could become more aligned after the annual benchmark revisions occur, he said, noting the expectation is that the payroll numbers will be revised lower.

The establishment-derived payroll numbers showed that the US economy has added 304,000 jobs so far this year (pre-pandemic, that January to April tally averaged 504,000 jobs). And monthly job gains, at a year-to-date pace of 78,000, are running above the historically weak sub-10,000-per-month rate seen last year.

The household survey, however, shows the effects of a constrained labor supply (shifts in retirements and immigration) as well as a labor market with few opportunities for job seekers.

“Since the beginning of the year, employment has actually fallen when you call up people and ask them if they have a job,” KPMG’s Swonk said. “Participation has also fallen and job leavers have fallen. All of that is a sign of underlying anxiety in the labor market.”

The labor force participation rate fell for the fifth consecutive month, inching down to 61.8% from 61.9%. The employment to population ratio, a measure of labor market engagement that includes those who are unemployed and not actively seeking jobs, fell to 59.1% which, excluding the pandemic, is the lowest rate since 2014.

The U-6 unemployment rate (an alternative measure of labor underutilization) rose to 8.2%, the highest in five months and two percentage points above where it was in 2019, Swonk said, noting that more workers are having to accept part-time jobs because full-time work isn’t available.

“Those who have a job are frozen in place, and those who want a job are frozen out of the labor market,” she said.

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CNN’s John Towfighi and DJ Judd contributed reporting.