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An unusually tight job market has a potential downside for the broader economy

A MARTINEZ, HOST:

The job market continues to hum month after month. This morning, we learned that employers added 428,000 jobs in April, exactly the same as the revised number from March. There are still a record number of job openings and not enough people to fill them. And that means lots of opportunities for people looking for work. But does it have a potential downside for the broader economy? NPR's Scott Horsley joins us now. Scott, all right, just how tight is that job market?

SCOTT HORSLEY, BYLINE: Good morning, A. It's very tight. The unemployment rate in April was just 3.6%, the same as the month before. That matches the lowest level since the start of the pandemic. And this was the 12th month in a row that employers have added more than 400,000 jobs, which is a really remarkable run. They'd probably have added more jobs if they could find more workers. Employers began the month of April with well over 11 million job openings. And many of those are still vacant. Here's how Federal Reserve Chairman Jerome Powell described the job market earlier this week.

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JEROME POWELL: For people who are out of work and looking, there are lots of job opportunities. Wages are moving up at rates that haven't been seen in quite a long time. So it's a good time to be a worker looking to either change jobs or get a wage increase in your current job.

HORSLEY: Average hourly wages in April were up 5.5% from a year ago. Certainly, those wage gains are good for workers. But they're also a potential source of concern for the Fed.

MARTINEZ: Why would they be concerned?

HORSLEY: The Fed is worried that employers may try to offset the cost of higher wages by raising prices. And that would make inflation, which is already at a four-decade high, even worse. That's why the Fed is hoping to pour a little cold water on this sizzling job market by raising interest rates in hopes of cooling off demand. You might see some very early effects of that in the construction industry in this report. Construction companies added only 2,000 jobs last month. That's a marked slowdown from earlier months. And that may reflect the impact of rising mortgage rates, which we know they've jumped pretty sharply. They're above 5%.

The central bank is hoping to engineer what they call a soft landing here - that is, cooling off the economy gradually but without a sharp jump in unemployment or a recession. Some economists are doubtful that Powell and his colleagues can pull off that balancing act. And that's one reason you've seen these really wild swings in the stock market over the last couple of days, with the Dow soaring more than 900 points on Wednesday, only to sink more than 1,000 points yesterday.

MARTINEZ: How close, though, is the economy to replacing all the jobs that were lost during the pandemic?

HORSLEY: It's getting pretty close. You know, there were 22 million jobs lost in the spring of 2020 when the coronavirus first struck here in the U.S. As of April, the U.S. had replaced nearly 95% of those. We saw solid job gains last month in manufacturing, in bars and restaurants, in warehousing and transportation. Now, it could be that we will start to see some slowdown in hiring in the coming months. Economist Nela Richardson, who's with the payroll processing company ADP, says that wouldn't really be a surprise at this late stage of the recovery.

NELA RICHARDSON: Given that the labor market is - made such tremendous progress back towards 2019 levels, I think what we're going to see going forward is more of a normal pacing.

HORSLEY: When you talk about normal pacing, you know, in the 12 months before the pandemic, the U.S. was averaging about 200,000 new jobs a month. So we've been running at more than double that level.

MARTINEZ: Anything else jumps out about today's jobs report?

HORSLEY: This is, generally, a pretty positive report. One negative, though, is what we see in the labor force. That is the number of people working or looking for work. Over time, a growing labor force could offer a little breathing room in this very tight job market. And we did see that in February and March. But last month, the workforce actually shrank a bit. So that means employers are going to continue to have a hard time finding workers. And that's going to continue to put upward pressure on wages and maybe prices as well.

MARTINEZ: That's NPR's Scott Horsley. Scott, thanks a lot.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.