Booming labor market poised to reach milestone for low unemployment

Booming labor market poised to reach milestone for low unemployment

The booming labor market is expected to extend a remarkable milestone in April, matching the last longest period of low unemployment on record.

Economists predict that the April jobs report, to be released by the Bureau of Labor Statistics on Friday morning, will show the unemployment rate holding at 3.8 percent, marking the 27th consecutive month of unemployment below 4 percent. This would match a low-unemployment period between 1967 to 1970, and close in on the longest period on record, between 1951 to 1953.

“The labor market right now is in a very sweet spot,” said Joe Brusuelas, chief economist at RSM. “Employers are unwilling to let go of workers due to persistently strong aggregate demand.”

The labor market has been booming so far in 2024, a reversal of last year’s gradual cool-down, even as high interest rates continue to weigh on parts of the economy. The economy churned out about 30 percent more jobs on average each month in the first quarter of 2024 than the final quarter of last year, according to Bureau of Labor Statistics data. Average hourly wage growth also accelerated in the first quarter of the year.

Economists say employers had been expecting lower interest rates later this year, which can spur economic growth, so they have been making anticipatory hires in areas of the labor market that retracted notably after the coronavirus pandemic, such as tech, transportation and financial services.

But the overall strength of the labor market combined with hotter-than-expected inflation this year has changed the Federal Reserve’s calculus for lowering interest rates at a 23-year high since last July. The central bank announced earlier this week that it would leave interest rates unchanged for now, with Federal Reserve Chair Jerome H. Powell declaring at a news conference that “further progress in bringing [inflation] down is not assured, and the path forward is uncertain.”

Economists predict the Fed will not be ready to begin cutting rates this summer as previously expected, which pushes potential cuts into the fall or later. In the meantime, high rates are expected to lead to slower job growth and rising unemployment later in the year.

Diane Swonk, chief economist at KPMG, called the stretch of low unemployment “phenomenal” and the “good side of the economy” at the moment. Bringing labor supply and demand into balance through higher interest rates, she added, remains “a long slog.” Ideally, that process will not trigger unemployment to rise beyond the Fed’s target rate of 4.1 percent, Swonk said.

Economists attribute the exceptionally long period of low unemployment to myriad factors. The aging of the baby boomer population has kept demand high for services as they retire and spend more on leisure and health care. Also, the infusion of federal dollars in the form of stimulus checks that Americans’ received during the pandemic and major spending bills such as the Inflation Reduction Act and the Chips Act have lifted the economy despite the headwind economic forces unleashed by higher interest rates.

“The unemployment rate being below 4 percent for two plus years now I think speaks to the power of full employment and running the economy hot,” said Andrew Flowers, a labor economist at Appcast, a firm that helps companies recruit online. “It’s really been the public stimulus, the federal stimulus that helped that.”

The most recent lengthy period of low unemployment was from 2017 through 2019, as the economy emerged healthy again from the Great Recession during Donald Trump’s presidency. The pandemic interrupted that jobless stretch.

Previous periods of very low unemployment happened in the early 1950s and late 1970s, coinciding with the Korean and Vietnam wars, because large-scale foreign conflicts and military conscription tend to pull people out of the civilian workforce who might otherwise be unemployed.

There are some signs that the labor market has cooled down since the period reemerging from the pandemic, especially when it comes to churn in the U.S. workforce. In March, job openings fell to the lowest point in more than three years, the Labor Department announced Wednesday. And the number of workers leaving their jobs continued to fall, according to the same report — suggesting that workers have lost the leverage they had during the so-called Great Resignation.

One reason for the ease in hiring has been a major pickup in immigration that helped fill long-standing job openings, with 3.3 million immigrants arriving in 2023, according to the Congressional Budget Office. But new immigrants often find jobs in the underground economy and are likely to be left out of official unemployment rate statistics, meaning the actual rate of joblessness could be even lower than official measures show.

One post-pandemic change in hiring: Even if the economy slows down and the labor market tightens up, companies appear to be holding on to workers, with layoffs hovering for months near historic lows. Economists say employers are eager to keep workers on, after experiencing the persistent labor shortages of just a few years ago.

A few key service-related sectors continue to produce the majority of job growth, even as other sluggish industries show signs of a rebound. Health care, government and education, leisure and hospitality, and social services have boomed thanks to strong spending from consumers and well-stocked government coffers. Health care made up a quarter of the 2.9 million jobs created over the past 12 months, largely due to the surging demands of the aging baby boomer population.

“There’s a bifurcation in the labor market between standing up jobs and sitting down jobs,” said Flowers. “Direct-care providing or manual-labor job [growth] is so strong, as we really see quite continued weakness with information and professional business services.”

In health care, gains have been particularly strong in nursing and residential care facilities, an area where employers still struggle to retain workers.

Tisheia Frazier, a certified nursing assistant, works in the dementia unit in a nursing home in Wynnewood, Pa. She said the facility has been persistently understaffed since before the pandemic, then things got worse. Before she used to oversee 15 residents on each eight-hour shift, but now she oversees 23.

Frazier says many of her colleagues have quit since the pandemic, unwilling to put up with the demands of the job — bathing, dressing and helping residents — for low pay. She’s thought about quitting, too. After 12 years, she earns $19 an hour. Between her income and her husband’s, as a cook at the same facility, there is barely enough to cover child care for their 4-year-old and food.

“You’re taking care of people mentally, physically, emotionally and spiritually,” Frazier said. “I have regulars who cry in the middle of the night because they’re confused. I know what I’d do if I had the time to spend half an hour with them. In reality, I give them a hug and reassure them, and then I have to leave.”