MNI INTERVIEW: US Labor Market Seen Cooling - Paychex

The U.S. job market shows hints of a soft landing including more modest wage gains, Frank Fiorille, a vice president at the payroll firm Paychex, told MNI.

"Wage inflation has definitely been slowing and it's actually been slowing for several months now to its lowest level since 2021," Fiorille said. "We see that as a positive trend," he said, showing that "what the Fed is doing is having some impact."

Hourly wage growth slowed to 4.5% year-over-year in April according to the Paychex IHS Markit Small Business Employment Watch. The index of employment growth for businesses with fewer than 50 workers also moderated for the first time this year.

Tuesday's report shows "a little bit of a trend change," Fiorille said, anticipating the Labor Department Friday will show subdued payrolls growth. "I'd say it might be pretty close to the consensus number or a little bit under it." The Bloomberg consensus sees 175,000 jobs added in the month of April.

LITTLE BANKING DAMAGE SEEN

The April slowdown isn't tied to recent banking turmoil and small firms "are still operating very, very well," he said. Paychex data nonetheless showed job growth weakest in California, with the index down 3% over the last 12 months and down 0.3% in April.

Weekly hours worked growth fell 0.1% from a year ago, making April the first month with a negative result in 2023.

"That could however be a signal that companies are now finding it easier to find people and they are no longer needing the temporary replacements or the need to reach out to that temp pool," said Fiorille, vice president of risk, compliance, and data analytics. Paychex draws from data of 350,000 clients, and he said labor supply is increasing and making it easier to hire.

"Things are good, but they are slowing," said Fiorille. Since wage growth will be slow returning to the Fed's 3.25% to 3.5% goal, policymakers should seek to increase supply rather than push for a harder economic slowdown, he said.

"The focus should be on increasing participation instead of necessarily doing more rate hikes and slamming on things and trying to put people in unemployment," he said. The central bank is expected to lift its benchmark fed funds rate by a quarter point to a 5% to 5.25% target range Wednesday. (See: MNI FED WATCH: May Hike Brings Tightening Cycle Closer To End)