April Jobs Report Preview: Spring Hopes Eternal

This Friday, the Bureau of Labor Statistics (BLS) will release the April jobs report. Official jobs data have thus far been slow to signal much of a slowdown in the broader economy and, for much of the past year, forward-looking sentiment has been much more dour than the on-the-ground reality for the labor market. That gap may now be approaching an inflection point.

The steady drip of layoff announcements that began last fall continues. After a torrid year-and-a-half for hiring, the ground was primed to absorb the sudden availability of (predominantly skilled) labor. But with each passing month, the ground is becoming more saturated and the absorptive capacity of the labor market is rapidly diminishing. The corporate sector is increasingly hunkering down for what they largely perceive to be a prolonged period of weak consumer demand. For the first time in a long time, new investments are being funded through cuts elsewhere on the balance sheet instead of through new financing.

By contrast, more forward-looking financial markets seem to see light at the end of the tunnel. Lending conditions eased as the slow-burn banking crisis largely appears to be contained and financial market forecasts for the path of interest rates ahead moderated.  Interest rate expectations have moderated, not necessarily out of conviction that inflation has been defeated, but due primarily to the practical recognition that a year’s worth of aggressive rate hikes have exposed fragile foundations in the corporate banking sector – fragilities that have largely been contained to date, but that teeter periodically, which could proliferate more broadly if interest rates move sharply higher.

Here are four trends we'll be watching for in the April jobs report:

Special Topic: Labor Force Participation

The labor force participation rate has steadily increased over the past four months and it is now on par with lower threshold of pre-pandemic norms. In light of recent gains, there is likely little upside left to participation for two primary reasons.

First, overall participation remains depressed primarily due to demographic shifts.

The Social Security Administration reported a record number of retirement insurance applications in March 2023 and first quarter retirements are running around 22 percent (55,400) above 2019-Q1 levels. The prime working age participation rate (25-54) is now in line with pre-pandemic highs meaning that the gap between current overall participation rates and their historic norms is driven by more older adults not participating in the labor market. Historically, participation has been procyclical. With the labor market already showing distinct signs of cooling and wage growth slowing, there are fewer incentives for adults sitting on the sidelines of the labor force to consider returning.

Second, return-to-office mandates could adversely affect women’s labor force participation.

Effectively all of the gains in labor force participation between 2019-Q1 and 2023-Q1 can be attributed to higher activity among women between the ages of 30 and 45 (chart below), with particularly pronounced increases for women with college educations and women with children at home. The most obvious explanation is that the expansion of remote work over the pandemic allowed these women to remain in the labor force when prior generations may have exited for child- or family-care responsibilities. Based on these data, it’s plausible that the expansion of remote work opened up the labor force to between 800,000 and 1.3 million young women – an expansion of the U.S. labor force roughly on par with a year’s worth of legal immigration.

How these workers will respond to the growing wave of return-to-office mandates remains an open question. Glassdoor research has previously shown how younger workers are less satisfied with remote work, while mid-career employees are most satisfied. Limiting job search to exclusively remote roles could come with an increasing wage penalty moving forward as job seekers remain highly interested in remote jobs but fully-remote roles become scarcer. If that proves to be the case, return-to-office mandates could drive a new generation of gender wage gaps.