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    Jobs Numbers in Focus as the Fed Hints at a ‘Skip’

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    Federal Reserve officials have signaled that they could hold rates steady at their upcoming meeting in June — pausing after a string of 10 straight rate increases to give themselves time to see how the economy is shaping up. But Friday’s fresh jobs data is likely to inform policymakers as they try to decide whether this is the right moment to take a break.Central bankers lifted interest rates to a range of 5 to 5.25 percent as of last month, up sharply from near-zero at the start of 2022. But they have been signaling for months that it could soon be appropriate to take a break from increasing rates so that they can assess how the economy is absorbing the big policy changes they have already made and the consequences of other developments, such as the fallout from recent bank turmoil.Higher interest rates cool the economy by making it more expensive to borrow to buy a house or finance a car purchase, but they take time to have their full effect. As rates rise, businesses gradually pull back on expansion plans, slowing hiring, which then feeds into weaker wage growth and a slower economy overall.That is why policymakers are watching job market data to figure out how higher interest rates are working. They have been expecting hiring to slow, wage gains to pull back and unemployment to begin to rise — but that has taken time to play out.Some Fed officials favor holding off on a rate increase in June, allowing more time for them to see how higher borrowing costs and heightened uncertainty are combining to restrain the economy. Patrick T. Harker, the president of the Federal Reserve Bank of Philadelphia, said this week that he is “definitely in the camp of thinking about skipping any increase at this meeting.”Others have underlined that while the Fed may be poised to pause its campaign to cool the economy, that does not mean it is done raising interest rates altogether.“A decision to hold our policy rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle,” said Philip Jefferson, a Fed governor who is President Biden’s pick to be vice chair of the institution, during a speech this week.“Indeed, skipping a rate hike at a coming meeting would allow the Committee to see more data before making decisions about the extent of additional policy firming,” Mr. Jefferson added. The Fed vice chair is traditionally an important communicator for the institution, one who broadcasts how core officials are thinking about the policy path forward.But even as the Fed moves toward a possible pause this month, officials will take into account incoming data on the economy. A key inflation number released last week came in firmer than economists had expected, and officials will receive a fresh Consumer Price Index inflation report the day that their June 13-14 meeting begins.Friday’s jobs report could reinforce — or, if it is abnormally strong, call into question — whether a skip makes sense. More

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    Companies Push Prices Higher, Protecting Profits but Adding to Inflation

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    Corporate profits have been bolstered by higher prices even as some of the costs of doing business have fallen in recent months.The prices of oil, transportation, food ingredients and other raw materials have fallen in recent months as the shocks stemming from the pandemic and the war in Ukraine have faded. Yet many big businesses have continued raising prices at a rapid clip.Some of the world’s biggest companies have said they do not plan to change course and will continue increasing prices or keep them at elevated levels for the foreseeable future.That strategy has cushioned corporate profits. And it could keep inflation robust, contributing to the very pressures used to justify surging prices.As a result, some economists warn, policymakers at the Federal Reserve may feel compelled to keep raising interest rates, or at least not lower them, increasing the likelihood and severity of an economic downturn.“Companies are not just maintaining margins, not just passing on cost increases, they have used it as a cover to expand margins,” Albert Edwards, a global strategist at Société Générale, said, referring to profit margins, a measure of how much businesses earn from every dollar of sales.PepsiCo, the snacks and beverage maker, has become a prime example of how large corporations have countered increased costs, and then some.Hugh Johnston, the company’s chief financial officer, said in February that PepsiCo had raised its prices by enough to buffer further cost pressures in 2023. At the end of April, the company reported that it had raised the average price across its products by 16 percent in the first three months of the year. That added to a similar size price increase in the fourth quarter of 2022 and increased its profit margin.“I don’t think our margins are going to deteriorate at all,” Mr. Johnston said in a recent interview with Bloomberg TV. “In fact, what we’ve said for the year is we’ll be at least even with 2022, and may in fact increase margins during the course of the year.”The bags of Doritos, cartons of Tropicana orange juice and bottles of Gatorade drinks sold by PepsiCo are now substantially pricier. Customers have grumbled, but they have largely kept buying. Shareholders have cheered. PepsiCo declined to comment.PepsiCo is not alone in continuing to raise prices. Other companies that sell consumer goods have also done well.The average company in the S&P 500 stock index increased its net profit margin from the end of last year, according to FactSet, a data and research firm, countering the expectations of Wall Street analysts that profit margins would decline slightly. And while margins are below their peak in 2021, analysts are forecasting that they will keep expanding in the second half of the year.For much of the past two years, most companies “had a perfectly good excuse to go ahead and raise prices,” said Samuel Rines, an economist and the managing director of Corbu, a research firm that serves hedge funds and other investors. “Everybody knew that the war in Ukraine was inflationary, that grain prices were going up, blah, blah, blah. And they just took advantage of that.”But those go-to rationales for elevating prices, he added, are now receding.The Producer Price Index, which measures the prices businesses pay for goods and services before they are sold to consumers, reached a high of 11.7 percent last spring. That rate has plunged to 2.3 percent for the 12 months through April.The Consumer Price Index, which tracks the prices of household expenditures on everything from eggs to rent, has also been falling, but at a much slower rate. In April, it dropped to 4.93 percent, from a high of 9.06 percent in June 2022. The price of carbonated drinks rose nearly 12 percent in April, over the previous 12 months.“Inflation is going to stay much higher than it needs to be, because companies are being greedy,” Mr. Edwards of Société Générale said.But analysts who distrust that explanation said there were other reasons consumer prices remained high. Since inflation spiked in the spring of 2021, some economists have made the case that as households emerged from the pandemic, demand for goods and services — whether garage doors or cruise trips — was left unsated because of lockdowns and constrained supply chains, driving prices higher.David Beckworth, a senior research fellow at the right-leaning Mercatus Center at George Mason University and a former economist for the Treasury Department, said he was skeptical that the rapid pace of price increases was “profit-led.”Corporations had some degree of cover for raising prices as consumers were peppered with news about imbalances in the economy. Yet Mr. Beckworth and others contend that those higher prices wouldn’t have been possible if people weren’t willing or able to spend more. In this analysis, stimulus payments from the government, investment gains, pay raises and the refinancing of mortgages at very low interest rates play a larger role in higher prices than corporate profit seeking.“It seems to me that many telling the profit story forget that households have to actually spend money for the story to hold,” Mr. Beckworth said. “And once you look at the huge surge in spending, it becomes inescapable to me where the causality lies.”Mr. Edwards acknowledged that government stimulus measures during the pandemic had an effect. In his eyes, this aid meant that average consumers weren’t “beaten up enough” financially to resist higher prices that might otherwise make them flinch. And, he added, this dynamic has also put the weight of inflation on poorer households “while richer ones won’t feel it as much.”The top 20 percent of households by income typically account for about 40 percent of total consumer spending. Overall spending on recreational experiences and luxuries appears to have peaked, according to credit card data from large banks, but remains robust enough for firms to keep charging more. Major cruise lines, including Royal Caribbean, have continued lifting prices as demand for cruises has increased going into the summer.Many people who are not at the top of the income bracket have had to trade down to cheaper products. As a result, several companies that cater to a broad customer base have fared better than expected, as well.McDonald’s reported that its sales increased by an average of 12.6 percent per store for the three months through March, compared with the same period last year. About 4.2 percent of that growth has come from increased traffic and 8.4 percent from higher menu prices.The company attributed the recent menu price increases to higher expenses for labor, transportation and meat. Several consumer groups have responded by pointing out that recent upticks in the cost of transportation and labor have eased.A representative for the company said in an email that the company’s strong results were not just a result of price increases but also “strong consumer demand for McDonald’s around the world.”Other corporations have found that fewer sales at higher prices have still helped them earn bigger profits: a dynamic that Mr. Rines of Corbu has coined “price over volume.”Colgate-Palmolive, which in addition to commanding a roughly 40 percent share of the global toothpaste market, also sells kitchen soap and other goods, had a standout first quarter. Its operating profit for the year through March rose 6 percent from the same period a year earlier — the result of a 12 percent increase in prices even as volume declined by 2 percent.The recent bonanza for corporate profits, however, may soon start to fizzle.Research from Glenmede Investment Management indicates there are signs that more consumers are cutting back on pricier purchases. The financial services firm estimates that households in the bottom fourth by income will exhaust whatever is collectively left of their pandemic-era savings sometime this summer.Some companies are beginning to find resistance from more price-sensitive customers. Dollar Tree reported rising sales but falling margins, as lower-income customers who tend to shop there searched for deals. Shares in the company plunged on Thursday as it cut back its profit expectations for the rest of the year. Even PepsiCo and McDonald’s have recently taken hits to their share prices as traders fear that they may not be able to keep increasing their profits.For now, though, investors appear to be relieved that corporations did as well as they did in the first quarter, which has helped keep stock prices from falling broadly.Before large companies began reporting how they did in the first three months of the year, the consensus among analysts was that earnings at companies in the S&P 500 would fall roughly 7 percent compared with the same period in 2022. Instead, according to data from FactSet, earnings are expected to have fallen around 2 percent once all the results are in.Savita Subramanian, the head of U.S. equity and quantitative strategy at Bank of America, wrote in a note that the latest quarterly reports “once again showed corporate America’s ability to preserve margins.” Her team raised overall earnings growth expectations for the rest of the year, and 2024. More

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    Fed Officials Were Split Over June Rate Pause, Minutes Show

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    In the Federal Reserve’s last meeting, “several” participants thought rates may have moved high enough to get inflation under control.Federal Reserve officials were unanimous in their decision to raise interest rates earlier this month, but were conflicted over whether additional increases would be necessary to bring inflation under control, according to minutes from the Fed’s last meeting released on Wednesday.The Fed voted to raise interest rates by a quarter-point on May 3, to a range of 5 to 5.25 percent, the 10th straight increase since the central bank started its campaign to rein in inflation last year. Although officials left the door open to further rate increases, the minutes make clear that “several” policymakers were leaning toward a pause.“Several participants noted that if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary,” the minutes said.Still, some officials believed “additional policy firming would likely be warranted at future meetings” since progress on bringing inflation back to the central bank’s 2 percent target could continue to be “unacceptably slow.”Policymakers believed that the Fed’s moves over the past year had significantly contributed to tighter financial conditions, and they noted that labor market conditions were starting to ease. But they agreed that the labor market was still too hot, given the strong gains in job growth and an unemployment rate near historically low levels.Officials also agreed that inflation was “unacceptably high.” Although price increases have shown signs of moderating in recent months, declines were slower than officials expected, and officials were concerned that consumer spending could remain strong and keep inflation elevated. Some noted, however, that tighter credit conditions could slow household spending and dampen business investment.Fed officials believed the U.S. banking system was “sound and resilient” after the collapses of Silicon Valley Bank and Signature Bank this year led to turbulence in the banking sector. Although they noted that banks might be pulling back on lending, policymakers said it was too soon to tell how big of an impact credit tightening might have on the overall economy.One source of concern for policymakers was brinkmanship over the nation’s debt limit, which caps how much money the United States can borrow. If the cap is not raised by June 1, the Treasury Department could be unable to pay all of its bills in a timely manner, resulting in a default. Many officials said it was “essential that the debt limit be raised in a timely manner” to avoid the risk of severely damaging the economy and rattling financial markets.The central bank’s next move remains uncertain, with policymakers continuing to leave their options open ahead of their June meeting.“Whether we should hike or skip at the June meeting will depend on how the data come in over the next three weeks,” Christopher Waller, a Federal Reserve governor, said in a speech on Wednesday.The president of the Minneapolis Fed, Neel Kashkari, said in an interview with The Wall Street Journal last week that he could support holding rates steady at the June 13-14 meeting to give policymakers more time to assess how the economy is shaping up.“I’m open to the idea that we can move a little bit more slowly from here,” he said.Officials have reiterated that they will continue to monitor incoming data before reaching a decision. On Friday, the Commerce Department will release a fresh reading of the Personal Consumption Expenditures index, the Fed’s preferred gauge of inflation. Early next month, the federal government will also release new data on job growth in May. More

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    Inflation Slowed in April, Marking 10th Month of Moderation

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    Price increases cooled, capping months of declines. The details held hints of hope.Inflation slowed for a 10th straight month in April, a closely watched report on Wednesday showed, good news for American families struggling under the burden of higher costs and for policymakers in Washington as they try to wrangle rapid price increases.The Consumer Price Index climbed 4.9 percent in April from a year earlier, less than the 5 percent that economists in a Bloomberg survey had expected. Inflation has come down notably from a peak just above 9 percent last summer, though it has remained far higher than the 2 percent annual gains that were normal before the pandemic.Cheaper prices for airline tickets, new cars and groceries including eggs and produce helped to pull inflation lower last month even as gas prices and rents climbed briskly. In an important shift, prices for some services slowed — a positive for the Federal Reserve, which has been raising interest rates to slow the economy and wrestle inflation lower. Central bankers have been watching services costs carefully in part because they have been proving stubborn.The report also provided welcome news for President Biden. Inflation has plagued voters for more than two years now, weighing on the president’s approval ratings. As prices climb less dramatically with each passing month, they may become a less pressing concern.Yet economists warned against overstating the progress: While inflation is showing positive signs of cooling, a chunk of the decline since last summer has come as supply chains have healed. With that low-hanging fruit gone, it could be a long and bumpy path back to a normal inflation rate.“Inflation is still sticky; I don’t think that the Fed is going to look at this and cut rates, or heave an especially big sigh of relief,” said Priya Misra, head of global rates research at TD Securities. “Not so fast. We can’t draw the conclusion that the inflation problem is over.”Even so, stock prices jumped in response to the data as investors — who tend to prefer lower interest rates — greeted it as good news for the Fed.After stripping out food and fuel to get a sense of the underlying trend in price increases — what economists call a core measure — consumer prices climbed 5.5 percent from a year earlier, a slight deceleration from 5.6 percent in the previous reading.And a closely watched measure of services prices outside of housing costs pulled back even more meaningfully. That was an encouraging sign that a stubborn component of inflation is finally on the verge of cracking, but it was also driven partly by a moderation in travel expenses that might not last, said Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives.That slowdown offered “a little bit of good news, but also probably a little bit of a head fake,” she said.While inflation has been gradually cooling for months, it has remained too elevated for policymakers.Higher Prices for Services Are Now Driving InflationBreakdown of the inflation rate, by category

    Note: The services category excludes energy services, and the goods category excludes food and energy goods.Sources: Bureau of Labor Statistics; New York Times analysisBy The New York TimesMuch of the slowing in price increases has come as supply chain bottlenecks that emerged during the depths of the pandemic have cleared up, allowing goods shortages to ease. Energy prices have also moderated after a surge in summer 2022 that was tied to Russia’s invasion of Ukraine.But underlying trends that could keep inflation persistently high over time have remained intact, including unusually strong wage growth, which could prod companies to try to charge more.That is one reason Fed officials have been paying such close attention to service prices: They tend to be more responsive to strength in the economy, and they can be difficult to slow down once they pick up.There are reasons to hope for more measured services inflation in coming months. Rents have begun to climb more slowly in market-based trackers, which should begin to show up in the official inflation data.But the question is whether the Fed has slowed the economy enough for other service prices — for things like travel, manicures, child care and health care — to follow suit.Central bankers have raised interest rates over the past year at the fastest pace since the 1980s to slow lending and weigh down growth, lifting borrowing costs above 5 percent as of this month.Those increases have made it more expensive to borrow money to buy a house or expand a business. As growth cools and companies compete less aggressively for workers, wage growth has already begun to slow. That chain reaction is expected to sap demand, which could make it harder for firms to increase prices without scaring away customers.But the full effect of the Fed’s moves is still playing out. The fallout could be intensified by a series of recent high-profile bank failures, which might make other lenders nervous and prompt them to pull back on extending credit.And Congress is approaching a showdown over raising the nation’s debt limit, which could also shape the outlook: If markets panic as Democrats and Republicans struggle to reach a deal and investors worry that the American government will fail to pay its bills, that could trickle out to hurt the economy.Democrats have warned that the brinkmanship could undermine progress in a strong economy with slowing inflation, while Republicans argued on Wednesday that rapid inflation is evidence that they are correct to demand spending cuts.With so many factors poised to weaken the economy, Fed officials are now assessing whether they need to raise borrowing costs further, or whether their moves so far will suffice to guide inflation back to normal. John C. Williams, the president of the Federal Reserve Bank of New York, told reporters in New York on Tuesday that the Fed’s next decision — to lift rates or to pause — would hinge on incoming data.“We’ll adjust policy going forward based on what we see out there,” he said.Policymakers will receive the consumer price report for May on June 13, the day before their decision, but officials typically give markets at least a hint of what they might do with rates ahead of time. Given that, central bankers are likely to pay close attention to the April inflation report.Fed officials will also receive May jobs data and a reading of the personal consumption expenditures price index — the measure they officially target in their 2 percent inflation goal, but one that comes out with more of a delay — before their next meeting. The personal consumption measure builds partly on the data from the consumer price report.For now, the fresh inflation figures probably aren’t enough to convince policymakers that they should change course and reduce interest rates soon, economists said.“It probably keeps them on track to pause at the next meeting,” Ms. Rosner-Warburton said. More

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    The Debt Limit Workarounds: The Coin, the Constitution, Premium Bonds

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    As Congress hurtles toward a debt limit showdown, ways to work around it are garnering attention.Move over, trillion-dollar coin, there is a new debt limit workaround in town — and this one sounds more sophisticated, which some of its proponents have suggested could make it more likely to work.For years, debt limit skeptics have argued that the United States can get around the cap on how much it can borrow by minting a large-denomination coin, depositing it in the government’s account at the Federal Reserve. Officials could then use the resulting money to pay the country’s bills. The maneuver would exploit a quirk in U.S. law, which gives the Treasury secretary wide discretion when it comes to minting platinum coins.But there have always been challenges with the idea: Treasury has expressed little appetite. It is unclear whether the Fed would take the coin. It just sounds unconventional to the point of absurdity. And now, some are arguing for a fancier-sounding alternative: premium bonds.The government typically funds itself by issuing debt in the form of financial securities called bonds and bills. They are worth a set amount after a fixed period of time — for example, $1,000 in 10 years — and they pay “coupons” twice a year in between. Typically, those coupon rates are set near market interest rates.But in the premium bond idea, the government would renew old, expiring bonds at higher coupon rates. Doing so would not technically add to the nation’s debt — if the government previously had a 10-year bond worth $1,000 outstanding, it would still have a 10-year bond worth $1,000 outstanding. But investors would pay more to hold a bond that pays $7 a year than one that pays $3.50, so promising a higher interest rate would allow Treasury to raise more money.Would those higher interest rates, which would cost the government more money, pose a problem? Not technically. The debt limit applies to the face value of outstanding federal government debt ($1,000 in our example), not future promises to pay interest.And the idea could also come in a slightly different flavor. The government could issue bonds that pay regular coupons, but which never pay back principal, or perpetual bonds. People would buy them for the long-term cash stream, and they would not add to the principal of debt outstanding.The premium bond idea has gained support from some big names. The economic commentator Matthew Yglesias brought it up in January, the Bloomberg columnist Matt Levine has written about it, and The New York Times columnist and Nobel-winning economist Paul Krugman made a case for it this week.But even some proponents of premium bonds acknowledge that it could face legal challenges or damage the United States’ reputation in the eyes of investors. Plus, their design and issuance would have to happen fast.“Normally, Treasury makes changes slowly, with lots of consulting of bond market participants and advance announcement of auctions,” said Joseph E. Gagnon, an economist at the Peterson Institute for International Economics, adding that the government might have to offer a discount.But, he added, it “sure beats defaulting” and he “would argue it is better than not paying workers or retirees.”While the premium bond idea might come in different packaging, it has a lot of similarities with the coin idea. Either plan would exploit a loophole to add to government coffers without actually lifting the debt limit. Because both are seen as gimmicky, it could be hard for either to become reality.Of all the options the government could use to unilaterally get around the debt ceiling, “they are the least likely in our opinion,” said Chris Krueger, a policy analyst at TD Cowen.But a workaround that hinges on the 14th Amendment could garner broader support, Mr. Krueger said. That would leverage a clause in the Constitution that says that the validity of public debt should not be questioned.Some legal scholars contend that language overrides the statutory borrowing limit, which currently caps federal debt at $31.4 trillion. The idea is that the government’s responsibility to pay what it owes would trump the debt limit rules — so the debt limit could be ignored.It would not be a perfect solution: The move would draw an immediate court challenge and could sow uncertainty in the bond market, even its proponents acknowledge. Still, some White House officials have looked into the option. More

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    Financial Stability Experts at the Fed Turn a Wary Eye on Commercial Real Estate

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    A financial stability report from the Federal Reserve flagged concerns tied to rising interest rates, including in commercial real estate.Federal Reserve financial stability experts are on the lookout for weaknesses after a year of rising interest rates — and as they survey the potential risks confronting the system, they are increasingly watching office loans and other commercial real estate borrowing.Fed officials have lifted borrowing costs rapidly over the past year — to just above 5 percent from near-zero in early 2022 — to cool rapid inflation by slowing the economy. So far, the fallout from that abrupt change has been most obvious in the banking sector. A series of high-profile banks have collapsed or faced turmoil in recent weeks partly because they were poorly prepared for heftier borrowing costs.But Fed staff members and market experts whom they survey cited commercial real estate as another area worth watching in the central bank’s twice-annual Financial Stability Report, which was released Monday.The jump in interest rates over the past year “increases the risk” that commercial borrowers will not be able to refinance their loans when the loans reach the end of their term, Fed staff wrote in the report, noting that commercial real estate values remain “elevated.”“The magnitude of a correction in property values could be sizable and therefore could lead to credit losses by holders of C.R.E. debt,” the report said — noting that many of those holders are banks, and particularly smaller banks.“The Federal Reserve has increased monitoring of the performance of C.R.E. loans and expanded examination procedures for banks with significant C.R.E. concentration risk,” the report said.The Fed’s comments on commercial real estate amounted to muted watchfulness rather than a full-throated warning — but they come at a time when many investors and economists are closely monitoring the sector. The outlook for office buildings in downtown areas, where workers have not fully returned after a shift to remote work that began during the coronavirus pandemic, has emerged as a particular concern on Wall Street.The report included a survey of 25 professionals at broker-dealers, investment funds, research and advisory organizations, and universities, and those respondents ranked commercial real estate as their fourth-biggest financial stability concern — behind risks from interest rate increases, banking sector stress, and U.S.-China tensions, but ahead of Russia’s war in Ukraine and an impending fight in Congress about raising the debt limit.“Many contacts saw real estate as a possible trigger for systemic risk, particularly in the commercial sector, where respondents highlighted concerns over higher interest rates, valuations and shifts in end-user demand,” the report said.The Fed’s stability report also focused on risks to the economy that might come from the recent banking sector turmoil, which many officials are worried might prompt banks to pull back when it comes to lending. A Fed survey of bank loan officers released on Monday showed that demand for many types of loans has fallen in recent months, and it is becoming gradually harder to borrow.Worries could “lead banks and other financial institutions to further contract the supply of credit to the economy,” the Fed report said. “A sharp contraction in the availability of credit would drive up the cost of funding for businesses and households, potentially resulting in a slowdown in economic activity.”And if banks pull back in a dramatic way, it could have knock-on effects, the Fed report warned.“With a decline in profits of nonfinancial businesses, financial stress and defaults at some firms could increase,” the report said, especially because companies are very indebted — which puts them on dicier footing if business goes badly. More

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    U.S. Employers Added 253,000 Jobs Despite Economic Worries

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    Employers added 253,000 jobs in April and unemployment fell to 3.4 percent, but the labor market’s strength complicates the Fed’s inflation fight.The labor market is still defying gravity — for now.Employers added 253,000 jobs in April on a seasonally adjusted basis, the Labor Department reported Friday, in a departure from the cooling trend that had marked the first quarter and was expected to continue.The unemployment rate was 3.4 percent, down from 3.5 percent in March, and matched the level in January, which was the lowest since 1969. Wages also popped slightly, growing 4.4 percent over the past year.The higher-than-forecast job gain complicates the Federal Reserve’s potential shift toward a pause in interest rate increases. Jerome H. Powell, the Fed chair, said on Wednesday that the central bank might continue to raise rates if new data showed the economy wasn’t slowing enough to keep prices down.It’s also an indication that the failure of three banks and the resulting pullback on lending, which is expected to hit smaller businesses particularly hard, hasn’t yet hamstrung job creation.“All these things are telling us it’s not a hard stop; it’s creating a headwind, but not a debilitating headwind,” said Carl Riccadonna, the chief U.S. economist at BNP Paribas. “A gradual downturn is happening, but it sure is stubborn and persistent in the trend.” Despite the strong showing in April, the labor market continues to gently descend from blistering highs.Downward revisions to the previous two months’ data meaningfully altered the spring employment picture, subtracting a total of 149,000 jobs. That brings the three-month average to 222,000 jobs, a clear slowdown from the 400,000 added on average in 2022. Most economists expect a more marked downshift later in the year.Jobs increased across industriesChange in jobs in April 2023, by sector More

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    Wages Grow Steadily, Defying Fed’s Hopes as it Fights Inflation

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    Wage growth ticked up in April, good news for American workers but bad news for officials at the Federal Reserve, who have been hoping to see a steady moderation in pay gains as they try to wrestle inflation back under control.Average hourly earnings climbed by 4.4 percent in the year through April. That compared with 4.3 percent in the previous month, and was more than the 4.2 percent that economists had expected.The increase in wages compared with the previous month — at 0.5 percent — was the fastest since March 2022.The hourly earnings measure can bounce around from month to month, so it is possible that the April increase is a blip rather than a reversal in the trend toward cooler wage gains. Even so, the data underscored that the Fed faces a bumpy road as it tries to slow the economy and bring inflation under control.Fed officials are closely watching the pace of wage growth as they try to assess how quickly inflation is likely to fade. While officials regularly acknowledge that wage gains did not initially cause rapid price increases, they worry that it will prove difficult to return inflation to normal with pay gains rising so rapidly.Companies may charge more in order to cover their climbing labor costs. And when households are earning more, they are more capable of keeping up with higher expenses without pulling back their spending — enabling businesses to charge more for hotel rooms, child care and restaurant meals without scaring away consumers.The Fed has raised interest rates at the fastest pace since the 1980s starting from March 2022. Officials this week lifted borrowing costs to just about 5 percent and signaled that they might pause their rate moves as soon as their June meeting, depending on incoming economic data.Jerome H. Powell, the Fed chair, noted during his news conference this week that wage growth has remained strong. He suggested the solid job market was one reason the Fed would likely keep rates high to continue slowing the economy “for a while” as it tried to wrestle inflation, which remains above 4 percent, back to the central bank’s 2 percent goal.“Right now, you have a labor market that is still extraordinarily tight,” he said, noting that a more dated wage figure released last week was “a couple percentage points above what would be consistent with 2 percent inflation over time.”That measure, the Employment Cost Index, showed that wages and salaries for private-sector U.S. workers were up 5.1 percent in March from a year earlier. While that is somewhat faster than the gain reported by the overall average hourly earnings figures for April that were released Friday, it is roughly in line with a closely-watched measure within the monthly jobs report that tracks pay gains for rank and file workers.Pay for production and nonsupervisory workers — essentially, people who are not managers — climbed by 5 percent in the year through April, Friday’s report showed. That number has continued to gradually moderate, even as the slowdown in the overall index has stalled.Fed policymakers will have another month of job and wage data in hand before they make their next interest-rate decision on June 14, making Friday’s figures just one of many factors that are likely to inform whether they pause rate increases or press ahead with more policy adjustments. Officials will also have further evidence of how much the recent turmoil in the banking sector is slowing the economy before they next meet.A series of high-profile bank failures have spooked investors and could generate caution at lenders across the country, which could make it harder to access loans for construction projects and mortgages and help to cool growth — but it is unclear so far how large that effect will be.Perhaps most importantly, officials will receive fresh inflation data before their next decision.“They’ll need to see the inflation data and digest this holistically,” said Kathy Bostjancic, chief economist at Nationwide. She said that the strong jobs numbers were just one month of data, but that they were “jarring” to see at a moment when economists had been looking for a slowdown.“Assuming that the inflation numbers continue to trend lower gradually, I think they can go on hold in June,” she said of the Fed. “But it will depend in the inflation readings.” More