U.S. job growth unexpectedly slowed in April, likely curbed by shortages of workers and raw materials as rapidly improving public health and massive government aid fueled an economic boom.

U.S. employers added only two
 

The Labor Department’s closely watched employment report on Friday, which showed a plunge in temporary help jobs - a harbinger for future hiring - as well as decreases in manufacturing, retail, and courier services employment, sparked a heated debate about the generosity of unemployment benefits.

The enhanced jobless benefits, including a government-funded $300 weekly supplement, pay more than most minimum wage jobs. The benefits were extended until early September as part of a $1.9 trillion COVID-19 pandemic relief package approved in March. Montana and South Carolina are ending government-funded pandemic unemployment benefits for residents next month.

Economists say some workers could still be fearful of returning to work even as all adult Americans are now eligible to receive COVID-19 vaccinations. Others also cited problems with child care as in-person classes remain limited in many school districts. Labor and input shortages have been well documented by business surveys.

“The employment gain is understated in part because of the generous largess from Washington,” said Sung Won Sohn, a finance and economics professor at Loyola Marymount University in Los Angeles. “Short-staffed restaurant owners are working overtime, truck drivers are impossible to find even after a hefty increase in hourly wages and loading docks at warehouses are keeping trucks idle as there aren’t enough workers.”

Nonfarm payrolls increased by only 266,000 jobs last month. Data for March was revised down to show 770,000 jobs added instead of 916,000 as previously reported. Economists polled by Reuters had forecast payrolls would advance by 978,000 jobs.

That left employment 8.2 million jobs below its peak in February 2020. The U.S. Chamber of Commerce urged the government to scrap the weekly unemployment subsidy, but the White House dismissed complaints the generous unemployment checks were causing worker shortages.

“It’s clear that there are people who are not ready and able to go back into the labor force,” Treasury Secretary Janet Yellen said. “I don’t think the addition to unemployment compensation is really the factor that is making a difference.”

Graphic: Nonfarm payrolls -

Reuters Graphic

Twelve months ago, the economy purged a record 20.679 million jobs as it reeled from mandatory closures of nonessential businesses to slow the first wave of COVID-19 infections. That plunge could have thrown off the model that the government uses to adjust the data for seasonal fluctuations, resulting in the April payrolls number being below forecasts.

Unadjusted payrolls increased by 1.089 million jobs after rising by 1.176 million in March.

“We have warned frequently that the COVID-19 shock last spring would echo through the seasonally adjusted data and cause significant volatility,” said Scott Ruesterholz, portfolio manager at Insight Investment in New York. “That is likely what is happening with this report.”

The report did not change expectations that the economy entered the second quarter with strong momentum and was on track for its best performance this year in almost four decades. Timely labor market indicators, like new claims for jobless benefits, which last week dropped below 500,000 for the first time since the pandemic started, suggest payrolls will pick up.

Stocks on Wall Street were trading higher. The dollar was weaker against a basket of currencies. Prices of longer-dated U.S. Treasuries fell.

ROBUST DEMAND

With more Americans vaccinated, many states have lifted most restrictions on businesses. That, together with $1,400 stimulus checks sent to qualifying households in March, unleashed pent-up demand. Supply chains were already strained by the shift in demand toward goods from services during the pandemic.

The burst in demand contributed to the economy’s 6.4% annualized growth pace in the first quarter, the second-fastest since the third quarter of 2003. With households sitting on at least $2.3 trillion in excess savings, economists were steadfast in their expectations for double-digit growth this quarter.

“The only thing keeping job gains down is supply, not demand,” said Joel Naroff, chief economist at Naroff Economics in Holland, Pennsylvania. “The economy is racing forward and that is what we should focus on.”

Graphic: U.S. labor market by sector -

Reuters Graphic
FILE PHOTO: Construction workers wait in line to do a temperature test to return to the job site after lunch, amid the coronavirus disease (COVID-19) outbreak, in the Manhattan borough of New York City, New York, U.S., November 10, 2020. REUTERS/Carlo Allegri

Leisure and hospitality gained 331,000 jobs in April, with hiring at restaurants and bars accounting for more than half of the increase. Government employment picked up as some school districts hired more teachers for in-person learning.

But temporary help services employment dropped by 111,400 jobs. Manufacturing employment fell by 18,000 jobs, with payrolls at motor vehicle manufacturers dropping 27,000. A global semiconductor chip shortage has forced production cuts.

In the transportation and warehousing industry, employment for couriers and messengers fell by 77,000. Retail employment dropped by 15,300 jobs. Construction payrolls were flat. With workers scarce, employers boosted wages and increased hours for employees. Average hourly earnings jumped 0.7% after dipping 0.1% in March. The average workweek rose 0.1 hours to 35 hours.

The unemployment rate rose to 6.1% in April from 6.0% in March as 430,000 people entered the labor force. The jobless rate has been understated by people misclassifying themselves as being “employed but absent from work.”

Without this misclassification, the unemployment rate would have been 6.4% in April. The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, climbed to 61.7% from 61.5% in March. It was, however, lifted by men. Women, who account for most of the at least 4 million people still outside the labor force, dropped out.

That could bolster President Joe Biden’s plan to spend another $4 trillion on education and childcare, middle- and low-income families, infrastructure, and jobs. It also supports the Federal Reserve’s ultra-easy monetary policy stance.

“The road to full employment may be a bit longer than we all thought,” said Scott Anderson, chief economist at Bank of the West in San Francisco.

President Joe Biden reacted on Friday to a disappointing April jobs report by saying the U.S. economy has a “long way to go” before recovering from its pandemic slump, and he urged Washington to do more to help the American people.

direction, but it's clear
 

U.S. job growth unexpectedly slowed last month, likely restrained by shortages of workers and raw materials. Nonfarm payrolls increased by only 266,000 jobs, well below the nearly 1 million jobs economists expected and a sharp contrast to steady increases in growth from January to March.

Biden and his team have said his $1.9 trillion pandemic relief package, the Democratic president’s first major legislative accomplishment, is helping to bring the economy back from its pandemic plummet, and they are pushing for another $4 trillion in new investments.

“Today’s report just underscores in my view how vital the actions we’re taking are,” Biden said in remarks at the White House. “Our efforts are starting to work. But the climb is steep and we still have a long way to go.”

Stock indexes still climbed to record highs despite the news, as fewer investors feared the Federal Reserve would reduce its massive stimulus program anytime soon, and bet Biden’s investment plans would succeed.

The jobs report highlighted an intractable political divide in Washington over government spending. Republicans and business groups blasted generous unemployment benefits in the relief package, contending they were stopping lower-wage Americans from going back to work. Critics object to the high price tag of Biden’s plans and warn they could bring inflation.

Biden said he did not believe government benefits were hindering a return to work, and his economists backed him up.

“It’s clear that there are people who are not ready and able to go back into the labor force,” Treasury Secretary Janet Yellen told reporters, citing parents whose children are still learning remotely. “I don’t think the addition to unemployment compensation is really the factor that is making a difference.”

Jared Bernstein, a member of the president’s Council of Economic Advisers, told Reuters that Biden’s COVID relief and stimulus, known as the American Rescue Plan, had helped generate an average of more than half a million jobs per month, April notwithstanding.

“Those are big numbers, and the fingerprints of the American Rescue Plan are all over those additions,” he said.

Bernstein and other officials said no course correction is required from the White House. But the U.S. Chamber of Commerce business lobby said the government should end the $300 weekly supplemental unemployment benefits to ease a labor shortage.

Some states, including Arkansas, Montana, and South Carolina, have decided on their own to end the special federal unemployment payments for their residents, refusing federal cash in the hope that helps businesses find workers faster.

“Why is anyone surprised that the jobs reports fell short of expectations?,” said Republican Senator Marco Rubio of Florida on Twitter. “I told you weeks ago that in #Florida I hear from #smallbusiness every day that they can’t hire people because the government is paying them to not go back to work


The share of Americans who are either working or looking for work rose last month, and the number of people who said they are not looking for jobs because of COVID-19 fell by 900,000 in April, Bernstein said.

“What we do see is a lot of people who are still hesitant to go back to work because of safety concerns, care issues, schooling issues, and we’ll continue to watch this very closely,” he said.