Strong labor market data does not mean a bright future for the U.S. economy

Although the April jobs report showed that the U.S. labor market still has some resilience, some Wall Street analysts remain cautious about the economic outlook. They warned that the current economic slowdown may have quietly begun, even if it has not yet manifested itself in a surge in layoffs or a surge in unemployment.

First, David Kelly, global chief strategist at JPMorgan Asset Management, said in an interview with Yahoo Finance that unless there is a significant shift in trade policy, especially tariffs, the U.S. economy may find it difficult to avoid slipping into a recession. He pointed out: "The chaos we are seeing now and the multiple pressures on the economy, if not alleviated, may eventually drag the U.S. economy into a recession." Economic slowdown does not necessarily have to be reflected in rising unemployment or large-scale layoffs. As long as companies become hesitant in hiring, it will be enough to have a substantial impact on the overall economy. Kelly said, "If employers generally choose to wait and see, even if they do not actively lay off employees, it may cause the economy to fall into trouble."

Second, on May 2, the U.S. Bureau of Labor Statistics released the April employment report. Data showed that the non-agricultural sector added 177,000 jobs that month, significantly higher than the market's expectation of 138,000. At the same time, the unemployment rate remained at 4.2%, the same as last month. The overall data looks solid on the surface, but many economists point out that there are some signs of weakness hidden behind this report that cannot be ignored. One of the key points is the continued weakness in hiring activities. According to the Job Openings and Labor Turnover Survey (JOLTS), as of the end of March, the US hiring rate remained at 3.4%, which was at a low level in nearly a decade after excluding the impact of the epidemic. This shows that companies remain cautious in expanding their manpower, reflecting the market's uncertainty about the future economy.

It is worth noting that although companies such as United Parcel Service (UPS) have announced layoffs, such as UPS plans to lay off up to 20,000 people, the overall number of layoffs shown in official data has not changed significantly. In the past few weeks, the overall number of layoffs in the United States has only risen slightly, which has also prompted many economists to turn their attention to other signs of a cooling labor market. Neil Dutta, head of Renaissance Macroeconomic Research, is also conservative about the economic outlook. He has predicted that the US economy will enter a recession in the near future. Although the number of new jobs in April was considerable, he stressed that the slowdown in wage growth is an indicator that needs to be closely watched. Data showed that the average hourly wage in the United States rose only 0.2% month-on-month in April, the lowest monthly increase since 2023.

More worryingly, the current wage increase in private enterprises has been lower than the federal funds rate, which is extremely rare and usually only occurs when the economy is under pressure or even in recession. "Historical experience shows that when wage growth cannot match the interest rate level, it usually means that corporate profit margins are under pressure and the labor market is weak," Dutta wrote in a report to clients. He called on the Federal Reserve to adopt loose policies as soon as possible to deal with the current economic slowdown. He believes that if high interest rates continue to be maintained, it will further suppress corporate recruitment and wage growth, and ultimately slow down the overall economic recovery.

Finally, the Federal Reserve will announce its latest monetary policy decision on Wednesday this week. The market generally expects that interest rates will remain unchanged this time, and some investors have begun to bet that there may be one or two interest rate cuts this year. However, in the current context where inflation has not yet been fully alleviated, every step of the Fed's decision will face tremendous pressure.

In summary, the current "robust appearance, weak internal structure" of the US labor market reflects the complexity and uncertainty of macroeconomic adjustments. Although the new employment data seems optimistic, the signals of weak recruitment and slowing wage growth cannot be ignored. This trend may be a key node in the transition of the economy from overheating to stagnation. In the absence of clear signals from the Federal Reserve, how to balance the expectation of interest rate cuts and inflation control will become the key to the next policy direction. The market's caution and wait-and-see attitude precisely reflect the fragility and volatility of the current economy.