Economic Update: April 2024

March continued a 39-month streak of job growth, and what’s more, the US economy now has three million more jobs than predicted before the pandemic upended everything. Some experts have worried that as a quick labor market boom subsides, gains would be relegated to just a few sectors. The opposite appears to be true today, with growth proving more balanced: about 59.4% of industries added jobs last month.

Despite persistently high interest rates, the construction industry added 39,000 jobs, about twice its typical monthly gain, probably at least partly due to the Biden administration’s investment in large-scale projects. Meanwhile, healthcare added 72,000 jobs, government expanded by 71,000 and retail added 18,000. But the most notable story in March is how leisure and hospitality’s gains have been outstripping the rest of the labor market: employers made the most hires on record in entertainment and recreation in February, and the industry has accounted for nearly 1 in 6 new jobs created in the last year.

After some erratic blips in the last few months, the household and establishment surveys are now back in tandem. Economists attributed the divergence to an increase in labor supply through immigration that was not yet captured in the household survey. In fact, immigration is now a front page US economic headline and prominent experts have been weighing in on the impact. “Recent adult immigrants are more likely to be young or prime age (90%) than the native-born adult population (62%) […] They have both higher labor-force participation rates and higher unemployment than the native-born population” noted Goldman Sachs economist Elsie Peng. “Last year, half of the growth in the labor force came from net immigration. There were 5.2 million additional jobs last year, thanks to net immigration. It’s been the key to rebalancing the labor market. It’s a huge part of the reason we’ve got the growth that we’ve got and the disinflation that we’ve had,” concurred Stony Brook University professor Stephanie Kelton.

We discussed last month how the influx of immigrants has likely doubled the capacity of the labor market without risk of overheating. It now appears that this impact is starting to recalibrate the floor for “expected” monthly job gains. Economists have been benchmarking the monthly break-even pace at roughly 100,000 to keep up with population growth – a pace Fed Chair Powell identified in 2022. According to recent analysis, accelerating immigration has been raising the monthly break-even rate and the Brookings Institution has recently estimated that employers could now add 160,000 to 200,000 jobs per month this year without sending wages and inflation into an upward spiral. Other experts such as JPMorgan’s Michael Feroli now suggest underlying payroll growth is closer to 200,000 per month, and Ellen Zentner of Morgan Stanley has projected a break-even rate of 265,000 well into 2025.

The Fed Chair himself has highlighted immigration’s role in the economy’s “remarkable” performance last year. “It’s a bigger economy, not a tighter one […] Our economy has been short labor, and probably still is,” however immigration “explains what we’ve been asking ourselves, which is, ‘How can the economy have grown over 3 percent in a year where almost every outside economist was forecasting a recession?’”

In all, most experts seem to be viewing March’s report favorably, perhaps even admiringly:

• “This report is like the macroeconomist’s Holy Grail,’’ said Julia Pollak, chief economist at ZipRecruiter.“It suggests that the Fed can walk and chew gum at the same time, bringing down inflation without crippling the labor market.”
• “The vanishingly few areas to criticize this labor market are melting away,” declared Andrew Flowers, labor economist at Appcast.
• “Clearly, the job market has plenty of gas in the tank in terms of demand, and also has room to run in terms of worker supply […] that’s a good thing for all of us” said Nick Bunker, economic research director for North America at Indeed Hiring Lab.
• “Were it not for the post-pandemic inflation spike and high interest rates, [this economy] would be hailed as one of the greatest turnarounds in history” noted Daniel Alpert, managing partner of Westwood Capital.