U.S. employment slows as only 160,000 jobs created in April, joblessness rate at 5.0 percent

May 19, 2016

The U.S. labor market grew in April at its weakest pace in seven months, new government data showed Friday, as more firms held off on hiring amid anxiety about broader economic weaknesses.

Employers added 160,000 new jobs and the unemployment rate held steady at 5.0 percent.

The latest jobs data provided an unexpectedly downcast signal about the nation’s labor market: A surge of Americans dropped out of the workforce and hiring in several key industries, including construction and manufacturing, all but stalled. The Department of Labor also revised downward jobs gains in the prior two months by a combined 19,000.

The deceleration in jobs growth provides the first potential signal that the nation’s recent economic sluggishness — the result of a still-strong dollar, thinned corporate profits and cautious business and consumer spending — could be spilling into the labor market. Economists said that employers are growing wary about expanding their payrolls and adding costs.

“This 160,000 is more consistent with the slower pace of the economy,” said John Silvia, managing director and chief economist at Wells Fargo. “Maybe the aberration is not this month, but the prior six months.”

In those earlier months, the U.S. had maintained robust employment growth, even though the rest of its economy was stuck in second gear. Last week, data showed that the U.S.’s gross domestic product grew only 0.5 percent on an annualized basis in the first quarter, and economists have said the contradictory mix of rapid hiring and weak growth is unsustainable.

“We still kind of have this puzzle” in which the economy is offering mixed signals, said John Robertson, senior policy advisor and economist at the Federal Reserve Bank of Atlanta.

Economists say the U.S. needs to add roughly 80,000 jobs in a month to keep up with population growth — but it marked a sharp snap back from the pace of the last half-year. Prior to April, the U.S. had added 200,000 or more jobs in five of the previous six months.

The U.S. economy is facing headwinds from diminished demand abroad and, of late, slowed purchasing by households and businesses. Business spending on basic equipment plunged in the first quarter of this year at a pace not seen since 2009, the depth of the economic crisis. That weakness has put the breaks on hiring, particularly in the manufacturing sector, which has shed 23,000 jobs so far this year. The struggles of that industry show how sluggish overall growth can undercut employment; U.S. manufacturers had added 208,000 jobs in 2014 and 26,000 in 2015.

“Manufacturers are pretty cautious right now about the overall economy,” said Chad Moutray, the chief economist for the National Association of Manufacturers. “They are pulling back on both hiring and capital spending based off of really weak numbers on demand.”

Labor Secretary Thomas Perez said in a phone interview that the labor market was still sending mostly encouraging signals: Long-term unemployed are being pulled into jobs, wage growth is pushing up, and businesses have added jobs for a record 74 consecutive months. He also mentioned that in 2015, a strong year for jobs growth, employers in three months hired 150,000 or fewer.

As the U.S. gets closer to full employment, he said, gains will be harder to come by.

“It’s going to take longer to go from 5 percent unemployment to 4 percent than it took to get from from 6 to 5 or 7 to 6,” Perez said. “It’s very conceivable that we’ll see perhaps very solid numbers but not as high as we have seen. But that, in addition, you see better wage growth. You see more people who were on the sidelines for a long time getting into the labor force. That’s the bellwether of a good recovery.”

Economists surveyed by Bloomberg had expected that the U.S. in April had added 200,000 new jobs, enough to push the unemployment rate down to 4.9 percent.

Perhaps the most disappointing data point came in labor force participation rate, which tumbled down as more than 300,000 Americans left the labor force — meaning they either departed jobs or abandoned their searches. A thinning of the labor force is a bad sign for the economy, because it means that competition is diminishing for jobs — and there is less pressure on employers to push up wages.

The shrinkage in the labor force helped to cut into earlier, substantial gains. Between October and March, the nation’s labor force grew by more than 2 million. Labor force participation data can be volatile from month to month, and the dip in April could be driven in part by Baby Boomer retirements.

Americans in April did see their salaries bump up by a solid eight cents in what analysts called the bright spot of Friday’s data. That is the third-best monthly gain over the last year, and during that span, wages have risen 2.5 percent — a notch above the 2.0 percent pace maintained throughout much of the recovery from the Great Recession.

Especially given the nation’s low inflation, “workers are starting to see some benefits of the tightening labor market over the previous few years in terms of higher earnings,” Harry Holzer, a professor of public polict at Georgetown University and author of the book, “Where Are All the Good Jobs Going?” said in an e-mail.

Wages, viewed over the last four months, look particularly encouraging: Pay is up 3.2 percent at an annualized rate so far in 2016.

The mining sector shed job for the 19th consecutive month — hemorrhaging causing by the collapse in oil prices. In April, two sectors — health care and professional and business services — accounted for nearly 70 percent of all job growth.

The Federal Reserve said last month that it expected the labor market would “continue to strengthen,” and April’s slowdown raises new doubts about whether the central bank will call for a rate hike at its meeting next month. The Fed lifted its benchmark interest rate last December from rock-bottom levels, and the Fed has primed markets to expect further, gradual increases this year.

“Anyone wanting a June hike should probably look away now,” said Luke Bartholomew, an investment manager at Aberdeen Asset Management.