We are seeing a strange economy that is getting stranger because of the war. GDP growth is relatively weak. The topline numbers for the last two quarters were misleading because of the DOGE layoffs taking effect in the 4th quarter, along with the government shutdown. These subtracted almost 1.2 percentage points from the quarter’s growth. The reversal of the shutdown added almost 0.6 percentage points to first quarter growth. However, if we just take the average, we get 1.3 percent growth, which is pretty weak.

At the same time, the labor market weakening we saw through 2025 seems to have stopped and may have even reversed somewhat. The unemployment insurance claims numbers are quite low, and certainly not what we would expect in a weak labor market. The unemployment rate has edged down by 0.2 percentage points since November. And the economy added an average of 68,000 jobs over the last three months, well above almost everyone’s estimates of a breakeven pace.

The irony of this picture is that we are seeing relatively rapid job growth, even as GDP growth slows. This is 180 degrees at odds with the story where AI is supposed to be eliminating all the jobs, it looks like productivity growth is slowing, not accelerating. (As I’ve noted, hours have grown less rapidly, as there has been a decline in the length of the workweek.)    

All of this is backdrop to me saying that I’m not entirely sure what’s going on, but I’ll do my best.

Health Care Will Again Lead Job Growth

This is probably the safest bet about the April jobs report. The health care sector has accounted for 146.0 percent of all job growth over the last year. Even taking out government to get around the job loss in the federal sector, health care accounted for 75.6 percent of private sector job growth. Look to the sector to add 30K-40K jobs in April.

The restaurant sector has been an area of healthy job growth. It added an average of 13,000 a month over the last year and added 21,500 in March. But real spending in restaurants has been trending downward since September. With people responding to higher gas prices and other costs, it seems likely that restaurant employment will dip in April.

Goods Sector Poses Big Question Mark

March was an extraordinarily positive month for the goods sector, with construction adding 26,000 jobs and manufacturing adding 15,000. The gain in construction was largely a bounce back from a drop of 13,000 jobs in February. It’s likely growth in the sector for April will be close to zero. Non-residential construction has been consistently falling over the last year, with housing close to flat.

The March rise in manufacturing employment was an anomaly. It had been losing jobs at the rate of about 8,000 a month. The gains were all in the durable goods sector, mostly metals and airplanes. Most likely the sector will again lose jobs in April.

It hasn’t gotten much attention, but trucking has been consistently losing jobs over the last three years, at the pace of around 3,000 a month. Cumulatively, it has lost 124,000 jobs since January of 2023. That comes to 7.8 percent of employment in the sector.

Professional and Technical Services Likely to Shed Jobs

The professional and technical services sector is a major source of relatively high-paying jobs. It added jobs rapidly in the pandemic recovery, peaking at a level more than 10 percent above the pre-pandemic high. But it has been shedding jobs slowly since December of 2024. It is likely to lose a small number of jobs in April.

Wage Growth Is Slowing

The year-over-year growth in the hourly wage slowed in 2025 from being close to 4.0 percent to 3.5 percent in the most recent months’ data. This is comparable to the slowing shown in the Employment Cost Index. This is an important indication of labor market weakness.

It is also cause for concern in the context of rising inflation. With year-over-year inflation going above 3.0 percent, real wage growth is likely close to zero. Also, if AI is leading  to the promised surge in productivity, it should be associated with more rapid wage growth. To date at least, we’re clearly not seeing this.

Unemployment Likely to Edge Down

The downward movement in the unemployment rate is likely to continue in April, although most likely just to 4.2 percent. If the economy generates anywhere close to its 68,000 average for the last three months, it would be well above the breakeven rate of growth. Also, carrying the calculation to the next two digits, the unemployment rate was 4.256 percent in March, so it doesn’t take much to get the rounding to 4.2 percent.

Unemployment Rates for Black and Young Workers to Edge Higher

There was an extraordinarily large rise in the unemployment rate for Black and young (ages 20-24) workers in 2025. These workers are the most disadvantaged in the labor market and tend to be hit first when the economy weakens. However, since November, the unemployment rate for both groups has fallen substantially, reversing much of the earlier rise.

In March the unemployment rate for Black workers fell 0.6 percentage points to 7.1 percent. That’s still well above the all-time low of 4.8 percent hit in April of 2023, but down considerably from the 8.2 percent hit last November. The unemployment rate for young workers fell 1.0 percentage point in March to 6.4 percent.

These data are highly erratic, so when there are large changes in a single month, it is likely that it will be at least partially reversed in the following month.

Share of Unemployment Due to Quits Likely to Edge Downward

The share of unemployment due to people quitting their jobs increased from 11.4 percent to 12.4 percent in March. This is still low for an unemployment rate of 4.3 percent. Nonetheless, this is also a highly erratic number. It is likely to at least partly reverse this rise in April. This is also an important measure of labor market health since it indicates the willingness of workers to quit a job without another one lined up.

Overall: Positive on Jobs and Unemployment, Negative on Wages

With immigration having largely ended, the job growth number we see for April is likely to be consistent with the growth rate of the native-born labor force. This should keep the unemployment rate at least stable, if not push it down slightly.

However, it is not clear that workers have the bargaining power necessary to secure wage gains. In the context of rising inflation, wage growth is barely keeping pace with prices, if at all. That is not a good story.