US hiring takes big step back; shortages of workers, raw materials blamed

US job growth unexpectedly slowed in April, likely restrained by shortages of workers and raw materials as an economic recovery bolstered by rapidly improving public health and massive government aid fueled a boom in demand.

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, could heat up the debate on generous unemployment benefits.

The enhanced jobless benefits, including a government-funded $300 weekly supplement, pay more than most minimum wage jobs. The unemployment benefits were extended 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. Shortages of raw materials, documented in several business surveys, are also hindering hiring.

"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. 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."

As such, the report did little to 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. New claims for unemployment benefits have dropped below 500,000 for the first time since the pandemic started.

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

Scramble For Workers

Many states, including New York, New Jersey and Connecticut, have lifted most of their coronavirus capacity restrictions on businesses as more Americans get vaccinated. But the resulting burst in demand, which contributed to the economy's 6.4% annualized growth pace in the first quarter, the second-fastest since the third quarter of 2003, has triggered shortages of labor and raw materials.

From manufacturing to restaurants, employers are scrambling for workers. The moderate pace of hiring could last at least until September when the enhanced unemployment benefits run out.

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 school districts hired more teachers following the resumption of in-person learning in many states.

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. 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 hour to 35 hours.

April's employment report could bolster President Joe Biden's plan to spend another $4 trillion on education and childcare, middle- and low-income families, infrastructure and jobs. The Federal Reserve has signaled it intends to leave its benchmark overnight interest rate near zero and continue to pump money into the economy through bond purchases for a while.

The unemployment rate rose to 6.1% in April from 6.0% in March. 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.

Despite last month's sharp moderation in hiring, the labor market is improving. 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.

Still, at least 4 million people, many of them women, remain outside the labor force. A broader measure of unemployment, which includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment, dropped to 10.4% from 10.7% in March.

The employment-to-population ratio, viewed as a measure of an economy's ability to create employment, edged up to 57.9% from 57.8% in the prior month. About 4.183 million people have been out of work for more than 27 weeks, accounting for 43.0% of the 9.8 million people classified as unemployed last month. That was little changed from March.