On the April Jobs Report

A huge miss versus the consensus, but only a large miss versus contemporaneous labor market indicators. This is not explained by pandemic conditions, which continue to ease substantively. The latest round of jobless benefits and stimulus payments reduces incentives to return to work and gives some low-wage workers incentives to temporarily quit. This explains why the vacancy rate is at 4.9% (consistent with a robust expansion), while the unemployment rate ticked up to 6.1% (consistent with recession). Employers’ desperation for workers is why average hourly earnings across the whole labor market increased by a sharp 0.7% month-on-month, even as most of the new jobs were in the low-wage leisure sector. This highlights the inflation risk of augmenting demand with higher wages while supply is crippled by a labor shortage.