The US economy will add jobs at the slowest pace after 2020

US jobs growth is expected to slow further in April, the first major test of the nation’s economic health since the Federal Reserve signaled it was „closer” to pausing its interest rate hike cycle.

According to economists polled by Bloomberg, the U.S. is forecast to have added 183,000 nonfarm payrolls last month, up from 236,000 in March. If accurate, this would represent the smallest monthly increase since late 2020.

The unemployment rate is forecast to range from 3.5 percent to 3.6 percent, although hourly wage growth is expected to be 0.3 percent month-over-month. On a year-over-year basis, wages are estimated to have risen by 4.2 percent.

The data will be released by the Bureau of Labor Statistics at 8:30 a.m. ET on Friday.

Wages are a key factor in inflation, especially in the services sector, so economists and investors will be watching closely for signs that higher interest rates are slowing the economy and reducing inflation.

The US Federal Reserve announced its tenth consecutive interest rate hike on Wednesday, raising its benchmark federal funds rate from 5 to 5.25 percent. Fed Chairman Jay Powell said the labor market was „abnormally tight” but „there are some signs that supply and demand . . . are returning to better balance.”

Data released earlier this week supported Powell’s assessment, with job openings from April 2021 falling to a much smaller-than-expected level. However, separate figures released last week highlighted that wage growth remained relatively strong and inflationary pressures remained high in many areas.

Powell insisted on Wednesday that it will take some time for inflation to reach the Fed’s 2 percent target, but investors are betting that the Fed will cut rates, first as soon as July.

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Jack Janasiewicz, a portfolio manager at Natixis Investment Managers, said stronger-than-expected jobs or wage growth data this week „will revive the perception that the Fed is not done.”

He also highlighted the importance of data on the labor force participation rate, which measures the number of Americans who are working or actively looking for work. The rate has increased in recent months after dropping dramatically early in the coronavirus pandemic.

„There are reasons to believe that people are coming back from the sidelines and increasing the labor supply, which is what the central bank is looking for,” Janasewicz said. „One of the best paths to a soft landing is to increase the labor supply rather than lay people off.”

Asked Wednesday about the tension between the central bank’s twin mandates to reduce inflation while boosting employment, Powell said: „Right now, we have to focus on reducing inflation. Fortunately, we’ve managed to do that so far without increasing unemployment.

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