In the lead-up to the latest U.S. Bureau of Labor Statistics’ jobs report, there was mounting evidence that the labor market and broader economy were softening. Concerning figures included sharp declines in consumer confidence and growing expectations of a forthcoming recession, as well as negative gross domestic product (GDP) growth in the first quarter of 2025, rising unemployment insurance claims, and a lackluster ADP jobs report for April 2025.
Given these concerns and rapidly evolving, highly uncertain economic and policy conditions, the latest jobs report suggests that, at least for the moment, the U.S. labor market is continuing its run of unprecedented strength and resilience. Even so, the lagging nature of labor market data suggests more time is needed to determine how the recent sharp shifts in economic policy will affect the labor market and broader economy.
Employment Growth Exceeds Expectations
Total nonfarm employment increased by 177,000 jobs in April 2025, significantly exceeding consensus estimates of 130,000. On the other hand, total nonfarm payroll gains for Q1 2025 were revised downward, suggesting that job growth during the quarter was more modest than previously thought. Taken together, these updates suggest that total nonfarm payroll employment has grown at an average rate of about 157,000 jobs per month during the 12-month period from May 2024 through April 2025.
Total nonfarm employment grew in 16 of the 21 major industries in April 2025, with job gains of 58,200 in health care and social assistance continuing to be a dominant driver of overall employment growth.
Other sectors that saw notable gains in April 2025 include transportation and warehousing (29,000) and accommodation and food services (20,600). The strong performance of these two sectors in April is interesting because both could be highly exposed to trade policy and growing geopolitical tensions. For example, the rush of many firms to maximize inventories of imported goods in Q1 2025 may have helped grow employment in transportation and warehousing, but in future months, a sharp decline in imports could have the opposite effect. Similarly, early indicators of declining foreign tourism to the U.S. could spell trouble for the hospitality sector as we enter the summer months.
Only four major sectors posted employment declines in April, led by a loss of 3,000 jobs in nondurable goods manufacturing. But recent employment changes in the public sector are difficult to interpret, and many de facto job losses are not captured in official statistics. Although federal employment only declined by 9,000 in April and 26,000 over the last three months, these losses do not include workers who are on paid administrative leave or those who have accepted deferred resignations. Given that tens of thousands of federal civilian workers are in these categories, the employment status of this population remains murky.
Unemployment Rate Holds
Amid concerns that labor underutilization rates would tick up, the U3 rate (i.e., the traditional unemployment rate) held steady at 4.2% and the U6 rate ticked down to 7.8%. Although both rates are low by historical standards, the uncertainty surrounding reductions to the federal workforce, as well as contractors that have been affected by cuts to government spending, make it difficult to evaluate current labor market underutilization. Additionally, the survey data underlying these numbers are several weeks old, which makes tracking labor underutilization very difficult when labor market conditions are evolving rapidly.
The U3 rate tracks the share of labor force participants who are jobless but able to work and actively seeking employment. The U6 rate includes people who are marginally attached to the workforce and those working part time for economic reasons (in addition to the set of unemployed people captured in the U3 rate).
Wage Growth Continues to Fall
The growth rate for year-over-year average hourly earnings continues to fall gradually. Year-over-year growth in average hourly earnings eased to 3.8% in April, aligning with consensus expectations. This also agrees with the finding of the Employment Cost Index (ECI) for Q1 2025 that overall labor costs are easing, a welcome sign to employers concerned about the potential inflationary impacts of new policies that could raise input costs.
Labor Shortage Eases
Since June 2024, the unemployed-people-per-job-opening ratio (UJOR) has consistently been around 0.9, considerably above its level during the historically overheated labor market conditions that prevailed during much of the pandemic and post-pandemic era. Recent indicators suggest the UJOR may soon rise above 1, providing some evidence that the recent U.S. absolute labor shortage is softening.
For example, the official UJOR value reached 1 for the first time in September 2024 and returned to 1 in March 2025. However, there is still a labor shortage in absolute terms, because the underlying data reveals the number of job postings at the end of March 2025 continued to be slightly higher than the unemployed population in the same month. The actual March 2025 UJOR value was about 0.98.
The UJOR stands a good chance of rising further in future months, but this does not signal an end to the labor shortage, for several reasons. Most importantly, even if there are technically enough unemployed people to fill every job opening, in real-world labor market conditions, there are always additional constraints that prevent jobs from being filled (e.g., if the skills of the unemployed population do not align with the skills that employers need). Consequently, although the rising UJOR is a positive sign for employers in general, there is every reason to expect that competition for talent will remain fierce in many sectors.
The UJOR is the ratio of the unemployed population (i.e., people without a job who are able to work and actively looking for employment) to the number of open jobs at a given point in time. When the value of this ratio is below 1, it means that even if every unemployed person could be immediately matched to an open job, there would still be unfilled positions at the end of this matching process. These conditions necessarily indicate a labor shortage in the overall labor market, though it is worth noting that other labor market frictions (e.g., skills mismatches between job seekers and open positions) can create a labor shortage even when the UJOR is above 1.
What Do These Findings Mean for You?
The latest jobs report provides a welcome piece of news amid growing concerns of an economic downturn. The U.S. labor market continues to display remarkable strength and resilience despite challenging conditions. A broad range of economic indicators are now suggesting a notable decline in the broader economy, however, and a huge amount of uncertainty persists, especially surrounding trade policy.
Over the next several months, new data should provide a better picture of how higher tariffs are affecting the labor market conditions. While employers continue to assess the evolving policy environment, staying informed on events that directly impact business operations will remain essential.
Sydney Ross is an economic researcher at SHRM.
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