'People are making a big deal about the increase in wage growth': Economists cast a skeptical eye over 'strong' jobs report

By Quentin Fottrell

Robust job numbers raise concerns about Fed rate hikes

Some economists are drawing the battle lines between the Federal Reserve's rate hikes and future U.S. economic growth.

The U.S. created 253,000 new jobs in April, surpassing the 180,000 forecast by economists polled by the Wall Street Journal. Meanwhile, the unemployment rate fell to 3.4% from 3.5%, the government said Friday

"While there is zero sign of a recession right now, if we do have a recession, it will be because the Fed raised rates too aggressively," said Heidi Shierholz, a senior economist and director of policy at the progressive Economic Policy Institute, a Washington, D.C.-based think tank.

"It would undo a great deal of the enormous gains, including the equity gains, that have occurred in the current recovery," she added.

Average hourly earnings rose by 4.4% over the last 12 months in April, up from 4.3% in March. But Shierholz said those figures should be taken in context. "The labor market is strong, but it's not 'too hot.' Wage growth is generally trending down," she said.

"People are making a big deal about the increase in wage growth in April, but remember, the month-to-month data are volatile. Annualized quarterly wage growth was 3.8% in April, down from 3.9% in March," she added. "These are not inflationary numbers."

The Federal Reserve on Wednesday raised its key interest rate, in the 10th straight meeting with an interest-rate hike. The quarter-percentage-point move puts the Fed's benchmark rate in a range of 5%-5.25%. This is just below the prior peak of rates before the Great Recession of 2008.

The Fed signaled that it may pause its rate hikes for now and also reworked its language, scrapping previous wording that said "some" additional hikes "may" be needed.

Is a recession avoidable?

Not everyone agrees that a recession can still be avoided, and in fact some say that a recession has already begun. A team of investment strategists at Bank of America recently identified 12 signs of a global recession.

The group, led by BofA Global Research's chief investment strategist Michael Hartnett, shared a "dirty dozen" indicators of a recession, including a drop in activity at U.S. factories and weakness in corporate earnings.

Job openings fell to 9.6 million in March, the lowest number since April 2021 and down from a revised 10 million in February, the Labor Department said this week. Total job openings in the private sector fell to 8.5 million in March from 8.9 million in February.

Inflation hikes may also hit smaller businesses harder, some economists say. Confidence among small-business owners deteriorated in March, the National Federation of Independent Business said last month. The outlook for both business conditions and sales weakened in light of the ongoing troubles facing regional U.S. banks.

The federation's small-business optimism index fell to 90.1 in March from 90.9 in February, significantly below the index's long-term average. The decline wiped away the slight increase in confidence among small-business owners in January and February.

Others poured some lukewarm water on Friday's strong job numbers. "Hiring has been slowing, but perhaps not as much as expected given the headwinds of persistent inflation, the steep increase in interest rates and financial strains associated with bank failures," said Mark Hamrick, senior economic analyst at personal-finance site Bankrate.

"The number of jobs added over the previous three months averages 222,000, compared to the stronger monthly 2022 job gains of nearly 400,000," he said. "It is noteworthy that monthly revisions for February and March mean 149,000 fewer jobs were added than earlier reported."

The Dow Jones Industrial Average , Nasdaq Composite Index and S&P 500 were up Friday on the back of the strong jobs figures, but one economist cautioned that the data would "dampen market enthusiasm for bets on rate cuts coming soon."

Shierholz advocated against another Fed rate hike. "We can absolutely sustain the kind of labor-market tightness we are seeing today, if the Fed doesn't stand in the way -- or hasn't already," she said.

-Quentin Fottrell

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05-06-23 1816ET

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