US Labor Department says this represents one of the largest downside misses on record.

Job growth in the United States significantly undershot forecasts in April, indicating that the job growth is softening.

The latest numbers point to the difficulty attracting workers, which is slowing the momentum in the labour market and challenging the economic recovery. Payrolls rose 266,000 from a month earlier, according to a Labor Department report yesterday.

This outturn the US Labour Department says represents one of the largest downside misses on record. Economists in a Bloomberg survey projected a one million hiring surge in April but this has failed to materialise.

In fact, the unemployment rate edged up to 6.1 per cent, though the labour-force participation rate also increased. The report stunned investors, as Treasury yields plunged and the dollar turned sharply lower. US stocks rose on expectations that monetary policy will remain conducive to economic growth for a sustained period.

Disappointing payroll levels

The disappointing payrolls print leaves overall employment more than eight million short of its pre-pandemic level and is consistent with recent comments from company officials highlighting challenges in filling open positions. Speaking with Bloomberg, Sarah House, senior economist at Wells Fargo & Co commented that, “It’s a lot faster to lay off workers than it is to hire them back…While we are seeing some workers come back into the labor force it just isn’t fast enough.”

While job gains accelerated in leisure and hospitality, employment at temporary-help agencies and transportation and warehousing declined sharply. Federal Reserve Chairman Jerome Powell last week highlighted the dichotomy between a large number of unfilled positions and millions of unemployed likely reflects a combination of a skills gap, child care obligations and lingering virus fears.

Bloomberg economists say, “April payrolls fell dramatically short of expectations, as a clumsy reopening of the economy appears rife with frictions, such as skills-mismatches, parents unable to return to the workforce amid a significant share of schools not yet open, and far from complete vaccination efforts.”

Massive fiscal stimulus including the latest US$1.9 trillion package passed by President Joe Biden in March may also be impacting the pace of job growth.

Some firms indicate enhanced unemployment benefits and the latest round of pandemic-relief checks are discouraging a return to work even as job openings approach a record. A sustained period of tepid job gains could support calls for further government spending.

In an interview with Bloomberg Television, Minneapolis Fed President Neel Kashkari said the data justified why the Fed is continuing to deliver its own stimulus. “Today’s jobs report is just an example of we have a long way to go and let’s not prematurely declare victory,” he said.

Another reason for softening employment numbers

Another reason for the more moderate employment gain is problems in the nation’s supply chains. For instance, motor vehicle production has been severely hampered by shortages of semi-conductors.

The jobs report showed manufacturing payrolls declined 18,000 in April, driven by a sharp fall in jobs at automakers. The wage data for April suggest that the rising demand for labor associated with the recovery from the pandemic may have put upward pressure on wages, the Labor Department said in a statement.

Labour force participation, a measure of the percentage of Americans either working or looking for work, rose to 61.7 per cent in April from 61.5 per cent, likely supported by increased vaccinations that helped fuel the re-openings of many retail establishments, restaurants and leisure-facing businesses. Average weekly hours increased to match the highest in records dating back to 2006.

The gain in the workweek, increased pay and the improvement in hiring helped boost aggregate weekly payrolls 1.2 per cent in April after a 1.3 per cent gain a month earlier.