By Dr. Michel Léonard, Chief Economist and Data Scientist, and Riley Conlon, Research Analyst, Triple-I
US employment remains more resilient than expected given monetary tightening, which added 253,000 jobs in April and pushed the unemployment rate down to 3.4 percent in April from 3.5 percent in March.
Job growth has been positive over the past 26 months, with the US economy now replacing most of the jobs lost at the start of the pandemic. Employment for Insurance companies and related activities the subsector specifically continues to outpace broader US employment. Unemployment for the insurance industry was 1.6 percent in April, up from 1.5 percent in March.
The resilience of employment and the historically low current unemployment rate are likely to increase pressure from inflation hawks on the Fed to not only keep raising rates, but to make each rate hike bigger. Based on Triple-I’s model, the spread between actual employment and the pre-COVID forward trend, which has narrowed since the end of the pandemic, is likely to stabilize at its current level.
Consistent with this forecast and our conversations with policymakers, our view is that the stronger-than-expected April job growth is unlikely to lead the Fed to aggressively accelerate the pace of current monetary policy tightening; however, it may extend the duration of the current tightening cycle.
US employment has been steadily returning to its pre-COVID growth trend. This shows great resilience, given monetary policy tightening. Expect the Fed to continue with “Slow and steady wins the race,” though calls for “monetary shock and awe” are likely to grow louder.