April 2022 National Economic Outlook

Continued Improvement in U.S. Labor Market, Even With Surprise First Quarter Contraction in GDP

Executive Summary

The March jobs report was another solid one, with job growth over the month of 431,000 based on a survey of employers. There was a big combined upward revision to job growth in January and February of 95,000. The three-month moving average of job growth through March was a very good 562,000. The private sector added 426,000 jobs in March, while government employment rose by 5,000. 

The unemployment rate fell to 3.6% in March from 3.8% in January. The unemployment rate, which soared to 14.7% in April 2020 with the pandemic, is now just barely above its pre-pandemic level of 3.5% in February 2020, and has fallen by a very large 2.4 percentage points over the past year. 

The labor force—the number of adults working or looking for work—increased by 418,000, while the labor force participation rate—the share of adults working or looking for work—rose to 62.4% in March from 62.3% in February. The labor force participation rate was above 63% in early 2020, so it has not fully recovered from the pandemic, but it has risen steadily over the past year, up by almost a full percentage point.

The U.S. economy contracted slightly in the first quarter of 2022, with real GDP down 1.4% at an annualized rate, according to the advance estimate from the Bureau of Economic Analysis. This was the first contraction in real GDP since the second quarter of 2020, when the pandemic caused a short but very severe recession. Although GDP fell in the first quarter, the U.S. economy is not in recession. 

Underlying demand remains strong, with solid increases in the first quarter in consumer spending, business fixed investment, and investment in housing. Growth will resume in the second quarter. The big drags on growth in the quarter came from a much larger trade deficit, which subtracted 3.2 percentage points from annualized growth; inventories; and government spending. The GDP release came after PNC’s April forecast was finalized. 

Inflation continues to run at the fastest pace in decades. The personal consumption expenditures price index jumped 0.9% in March from February, the biggest one-month jump in prices since 2005. Higher energy prices in the wake of the Russian invasion of Ukraine were the catalyst for higher inflation; the index rose 0.5% in both January and March. But the core PCE price index, excluding volatile food and energy prices, rose a much more moderate 0.3% in March, the same pace as in February and down from 0.5% in January. 

On a year-ago basis overall PCE inflation was 6.6%, up from 6.3% in February and the fastest pace since 1982. But core PCE inflation actually slowed slightly on a year-over-year basis in March to 5.2%, from 5.3% in February. 

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April National Economic Outlook

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