Unemployment on the rise as employers scale back hiring efforts

U.S. employers scaled back hiring in April and the unemployment rate unexpectedly rose, suggesting some cooling is underway in the labor market after a strong start to the year.

Nonfarm payrolls advanced 175,000 last month, the smallest gain in six months, a Bureau of Labor Statistics report showed Friday. A later release showed that business activity in the service sector — the largest part of the economy — unexpectedly weakened to the lowest level in four years, while prices climbed.

Friday's jobs report signaled further evidence that demand for workers is moderating, but the data likely doesn't amount to "an unexpected weakening" that Federal Reserve Chair Jerome Powell said would warrant a policy response.

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Powell, who spoke Wednesday after the central bank held interest rates steady for a sixth straight meeting, noted that wage growth probably needs to "move down incrementally" for policymakers to meet their inflation objective. Friday's report showed some movement in that direction after a slew of releases earlier in the week suggested wage pressures continue to bite.

Average hourly earnings climbed 0.2% from March and 3.9% from a year ago, the slowest pace since June 2021. Some economists were expecting a stronger increase in part due to a new California law mandating a $20 minimum wage for fast-food workers, which took effect April 1.

Employment was also weaker in the service-sector report, published later Friday by the Institute for Supply Management. Combined with the jobs data, the figures represent a moderation in demand that may restrain economic growth.

Job growth slowed within leisure and hospitality, construction and government. Payrolls declined at automakers and temporary-help providers. Gains were concentrated in health care, transportation and retail trade.

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The labor market, as well as a range of other economic indicators, were robust in the first quarter of the year. Payrolls in January through March averaged 269,000, so Friday's print is a notable slowdown.

President Joe Biden has been touting the recent strength of the job market as evidence that his policies are helping the economy. He pointed out that the unemployment rate has held below 4% for over two years, according to a statement after the report.

Chicago Fed President Austan Goolsbee also applauded the numbers, calling the headline payrolls gain "very solid." Additional reports like this one will help policymakers gain confidence that the economy isn't overheating, Goolsbee said on Bloomberg Television Friday.

The participation rate — the share of the population that is working or looking for work — held steady at 62.7%. The rate for workers aged 25-54 ticked up to 83.5%, matching the highest level in two decades. Increased participation will help to restrain wage growth.