The 266,000 jobs that U.S. firms added in April were "nowhere near" what was expected, a Federal Reserve official said Friday, and added little to the "substantial further progress" officials want to see before considering changes to monetary policy.
"I hoped to see a stronger report today," Richmond Federal Reserve president Thomas Barkin said in webcast comments to a West Virginia business group.
Barkin said he thought the results were largely driven by labor supply issues and "frictional" barriers to employment such as mismatches between available workers and job skills, and workers still facing child care and other constraints. Many, he said, flush with savings and with enhanced unemployment benefits still available, have the "wherewithal" to wait to return to work and may be doing so.
Still, it gives Fed policymakers little reason to do anything but keep the monetary policy tap wide open until the economy is on a clearer path back to full employment.
"This puts less pressure on the Fed to prematurely talk about tapering. They wanted to be patient and hold off on it," said Larry Adam, chief investment officer at Raymond James in Baltimore, Maryland, in reference to the process of reducing the $120 billion in monthly bond purchases the Fed currently makes to help hold down long-term interest rates that influence family and business spending decisions.
The Fed in December said it would not consider changing its bond purchases until there had been "substantial further progress" in reaching its full employment and 2% inflation goals.
Graphic: Substantial further progress for the Fed? - https://graphics.reuters.com/USA-ECONOMY/FEDPROGRESS/nmovazmdypa/chart.png
Fed Chair Jerome Powell has said he wants to see a "string" of strong monthly job reports before opening debate on when and how fast to reduce the support provided to the economy through the coronavirus recession, including the bond purchases and the promise of near zero interest rates for years to come.
Officials had cheered data showing more than 900,000 jobs added in March as the expected start of that procession, and analysts said they thought the Fed might begin debate this summer over when to trim the bond purchases as a first step toward shifting monetary policy from crisis mode.
But the March payrolls gain was revised down to 770,000, and the April disappointment raises questions about the economy's, and the Fed's, path.
A Reuters poll of economists had predicted the United States would add 978,000 jobs in April. Atlanta Fed president Raphael Bostic had said Thursday he looked for "a really strong number" of perhaps more than 1 million.
U.S. President Joe Biden said the report showed there was a "long way to go" before the economy recovered from the pandemic-induced slump.
Graphic: The jobs hole facing Biden - https://graphics.reuters.com/USA-ECONOMY/JOBS/xlbpgygrnpq/chart.png
'STAGFLATION' SCENARIO?
Despite the job gains of just 266,000 last month, wages rose. If labor supply and demand remain out of whack, steadily higher wages could lead to inflation even while job growth remains muted and short of the Fed's goals -- a "stagflation" scenario that would be among the worst-case outcomes for policymakers.
Some commodity and other prices are soaring due to supply shortages and bottlenecks in ramping up production, while the provision of the most important input of all -- labor hours -- remains clouded by a host of health, social and financial considerations.
With demand for goods and services expected to bulge "fulfilling that demand would require either the 10 million workers short of trend to get jobs extremely quickly, average hours to increase a lot, or productivity to jump," wrote Jason Furman, former chair of the Council of Economic Advisers and a senior fellow at the Peterson Institute for International Economics. "Absent those changes the result would be a substantial increase in prices."
The economy is about 8.2 million jobs short of its pre-pandemic peak in February 2020, but Furman estimates the gap at 10 million to account for job growth that likely would have taken place had it not been interrupted by the pandemic.
Fed officials, however, feel price rises are likely temporary and have made clear they won't be satisfied until the combination of job gains and evidence of more to come have put the economy on a path towards "maximum employment."
The unemployment rate rose in April to 6.1% and remains well above the 3.5% it reached in the months before the pandemic, the Friday report showed. Just 57.9% of the population was working last month, slightly up from 57.4% in December but still well short of the 61.1% as of February 2020.
The job losses remain concentrated among leisure and hospitality industry companies that were hardest hit by the pandemic, a particular concern to the Fed since that industry is a major source of jobs for lower-wage and less-skilled workers.
Graphic: Jobs by industry - https://graphics.reuters.com/USA-FED/INDUSTRY/jznpnrzdxpl/chart.png
After the report, interest rate futures traders slashed bets the Fed will start raising rates next year, and the yield on the 10-year Treasury note fell to a two-month low, suggesting the market was more concerned with slowing job growth than inflation pressures.
The bulk of U.S. central bankers see waiting until 2024 before lifting rates for the first time since slashing the Fed's policy rate to near zero in March last year.