Amid the widespread doom and gloom over the economy, the U.S. job market is putting on a happy face and shrugging off myriad alarm bells, Including a war-induced surge in gas prices, the job-displacement threat from AI and a K-shaped economy that amplifies the affordability crisis for lower income households. Those ominous signs are still present, and some believe the job market is echoing the plight of Wile E. Coyote, suspended until the ground collapses under him. It’s unclear what is keeping the momentum going, or whether it will fade; but for now, the Energizer Bunny is running the show and keeping Mr. Coyote afloat. 

For the second consecutive month, business hiring has come in far stronger than expected, as nonfarm payrolls jumped by 115 thousand in April, about double the consensus expectation. That followed an even larger 185 thousand increase in March and represents the strongest back-to-back gains since the closing months of 2024. While the usual culprits led the charge, with hiring in health and education doing most of the heavy lifting, the breadth of the job gains was impressive as 53 percent of industries expanded headcount. This is the fourth consecutive month that the 50 percent threshold has been exceeded, a mark topped only three times in 2025, when the average for the year was only 48.2 percent.

Simply put, the high-profile layoff announcements in recent months, most notably among tech companies, are being more than offset by hiring elsewhere. The AI impact itself may be a double-edged sword, at least temporarily. It is eliminating jobs by automating tasks, such as writing software code, previously done by tech-savvy workers. Most of those workers were in the information sector, which lost 13 thousand jobs last month and more than 300 thousand since peaking late last year.  At the same time, it is generating jobs for those same workers outside of the information sector by the rapidly expanding swath of companies newly adopting AI, hoping to reap the productivity rewards the early adopters are getting.  

That said, it is more than likely that the balance is one-sided, with more tech related workers losing than gaining jobs and landing on the unemployment lines. Their prospects, as well as those for new graduates, are more daunting as finding a job is a challenging endeavor. Outside of the pandemic era, the job-finding rate over the past three months is the lowest since 2015. For those collecting unemployment benefits, the low-hiring, low-firing narrative remains loud and clear. No doubt, their plight also resonates with workers receiving paychecks, contributing to the historically low rate of voluntary job quitters. 

It's too early to assess how the climb in gas prices will impact the job market, as the increase has been extremely rapid and households as well as businesses have not had time to adjust. We suspect that the delayed effect will be seen in May, as lower income households are increasingly curtailing other purchases to fill up at the pump; meanwhile, businesses may be holding on to staff until they see how long the drag from elevated oil prices lasts. If the Mideast conflict ends abruptly and oil prices retreat, the risk of not having available workers to rehire, as was the case during the pandemic, looms large. 

That risk is already enhanced by a stagnant labor market, reflecting constraints on immigration and the retiring of aging baby boomers. The civilian labor force shrank in five of the last six months and is no higher now than it was in January 2025. With the supply of labor limited, it does not take much to keep the unemployment rate low, and April was no exception. At 4.3 percent, it has not moved by more than a tenth of a percent since June 2024. We estimate that it could remain at that near-historic low level with zero job growth this year. What’s more, fewer people are entering the labor force, as the labor force participation rate slipped to 61.8 percent last month, the lowest since October 2021. The biggest dropouts are the young and older cohorts (age 55 and over). However, the prime-age group remains fully engaged in the job market, as its participation rate, at 83.8 percent, hovers near its all-time high.

We don’t see the job market falling off the cliff anytime soon, unless the oil price shock intensifies due to a reescalation of Mideast hostilities. But the surprisingly strong increase in payrolls in recent months does not augur for a corresponding boost to growth. For one, worker earnings are not keeping pace with the increase in jobs. Indeed, average hourly earnings grew by a slim 0.2 percent in April, and by an annual rate of 2.8 percent over the past three months. That matches the slowest three-month growth rate since October 2023 and is off from a nearby peak rate of 4.2 percent last November. 

Meanwhile, those wage increases are going a shorter way, as worker purchasing power has been eroded by higher inflation. Until this month, the annual increase in worker pay has exceeded inflation, although by a narrowing margin; but that gap should close this month, as the consumer price Index may have spiked close to 4 percent in April compared to last year, thanks to the surge in gas prices. While gas prices have less than a 3 percent weight in the CPI, it has a much broader impact on the population. About 76 percent of adults (aged 18-64) own or lease a car, and their paycheck will take a significant hit when they fill up old Betsy this month.