Sharp Decline in Monthly Job Growth Stuns

An unemployed woman looking for work from home in a modern age
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Ouch.

The U.S. economy added just 266,000 jobs in April, about a quarter of what was expected by economists and a sharp decline from March’s increase, government data released Friday showed.

“Well, no one saw that coming,” ING’s chief international economist, James Knightley, wrote in a commentary.

Key Takeaways

  • The U.S. economy added just 266,000 jobs in April, about a quarter of what economists had expected.
  • Economists attributed the shortfall to supply shortages and bottlenecks that have shut factories in some cases.
  • Leisure and hospitality industries accounted for much of the gain, while auto manufacturing, temporary help services, and the transportation sector lost jobs.
  • Some forecasters said the disappointing data validates the Federal Reserve’s decision not to rush to declare an economic recovery by changing course on interest rates or other monetary policy.

Surprised economists attributed the disappointing data to supply shortages and bottlenecks, including a global shortage of semiconductors, but tried to stay optimistic about the rebound in leisure and hospitality sectors. The net gain from those and other service industries made up a bulk of the increase, with the addition of 234,000 jobs in April. Losses came in transportation and warehousing (74,000), temporary help services (111,400,) and retail (15,300). Auto manufacturing lost 27,000 jobs as the chip shortage caused production delays and factory shutdowns.

The gain in March—one source of optimism heading into Friday—was also revised down by 146,000 jobs, to 770,000, according to the data from the Bureau of Labor Statistics.

Economic growth in the first quarter surged 6.4% on the back of stimulus-fueled consumer spending and the advent of COVID-19 vaccinations, encouraging predictions that the labor market had turned the corner and jobs would begin to come back in full force following the pandemic crush last year.

Economists expected 977,500 jobs would be added in April, according to a median estimate cited by Moody’s Analytics, after March had the largest gain in seven months. The much smaller increase of 266,000 jobs leaves the U.S. farther away from a full recovery: There are still 8.2 million fewer jobs than in February 2020, before the COVID-19 outbreak. Chipping away at the deficit could take months, economists said, as workers who stayed home from work due to anxieties about the virus or because of childcare responsibilities ease back into the labor force.

“It is fanciful to believe we can flip a switch and return to [the] world we left given the detour we have taken,” Diane Swonk, chief economist at Grant Thornton, wrote on Twitter. “Some changes triggered by the pandemic will be long lasting.”

Some economists said they were still optimistic about the trajectory for the job market in the coming months, especially because more people looked for work last month. The labor force—which includes people who are employed or looking for work—grew by 430,000 people in April, according to BLS data, a development that actually caused the unemployment rate to rise slightly. The rate inched up to 6.1% from 6.0% in March.

Validating the Fed's Status-Quo Stance

The Federal Reserve will likely see Friday’s report as reason to continue its easy-money policy. For weeks now, a seemingly improved jobs market, coupled with the fast pace of economic growth at the start of the year and increasing concerns about inflation, have had some wondering whether the Fed would raise its benchmark interest rate sooner than expected. The Fed reiterated last week that it won’t alter its course until “substantial further progress” has been made, and economists said the April job growth isn’t enough progress.

“Today's misfire of a jobs report fits with the Fed's thinking that the road back to normality for labour markets could be a long one, warranting an extremely patient approach to removing stimulus,” Sal Guatieri, senior economist at BMO Capital Markets, wrote in a commentary.

President Joe Biden also urged patience Friday morning during a speech on the jobs report from the White House, calling the recovery “a marathon.”

“We never thought that after the first 50 or 60 days everything would be fine,” Biden said. “Today there is more evidence that the economy is moving in the right direction. But it’s clear we have a long way to go.”