Job Market Resilience May Not Bolster Consumer Spending

The latest jobs data indicate that employers added more positions in April than had been expected, and the news may, incrementally, make consumers feel a bit better about their employment prospects.

But any uptick in sanguine sentiment, at least on the work front, may not translate into confidence to open up one’s wallet.

These readings from the Bureau of Labor Statistics on Friday (May 2) can be interpreted as somewhat of a relief amid recession concerns, given the relative resilience in job performance when measured against recent months, even in the light of very different surrounding conditions.

The modest pace of job creation came as total nonfarm payroll employment increased by 177,000 in April, slightly less than the March increase (+185,000) but more than the gains registered in January (+111,000) February (+102,000).

Additionally, revised figures for the previous two months for a combined reduction of 58,000 in employment gains for the first two months of the year.

Service establishments added 156,000 jobs while goods producing industries added 11,000 jobs. Healthcare and social assistance (58,000) and transportation and warehousing (29,000) were the main positive contributors to the overall increase, while retail trade saw an 1,800 seasonally adjusted job count drop from the month prior — and earnings season will give an indication as to whether we’ll see a further pullback in the space.

Over a three-month period, job additions averaged 155,000, less compared to the same register for April 2024 (195,000) although the pace is quite similar when looking at private establishments alone (148,000 vs 150,000 a year prior). Within government, federal government employment declined by 9,000 in April and is down by 26,000 since January, which indicates that the impact of the DOGE-inspired cuts to the government’s rosters will continue to play out through the next few months.

The unemployment rate stood flat at 4.2% although this is a relatively high value: it stood at 3.9% on April 2024 and 3.4% in April 2023. This equates to 7.2 million unemployed adults in the U.S.

In April, the number of long-term unemployed (those jobless for 27 weeks or more) increased by 179,000 to 1.7 million. The long-term unemployed accounted for 23.5% of all unemployed people.

In April, average hourly earnings for all employees on private nonfarm payrolls rose by 0.2%, to $36.06. Over the past 12 months, average hourly earnings have increased by 3.8%. The last inflation reading for March points toward a 2.4% general increase in prices over a 12-month window, while food prices in particular rose by 2.8%, which indicates that there’s not all that much wiggle room between take-home pay and essential expenses.

As for the willingness to keep spending, or even the ability to keep doing so, we’ve noted in recent coverage of companies such as Block that consumers are focusing on the essentials, and spending growth on those categories is slowing.

Additionally, and as reported last week, short-term inflation expectations (one-year expectations) surged from 5% in March to 6.5% in April, the highest level since 1981. Long-term inflation expectations (five-year expectations) increased from 4.1% to 4.4%, the highest since 1991. Expectations imply, then, that price increases may outpace wage growth, which foments further pressure on household budgets.

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