The latest nonfarm payrolls report from the Labor Department pulled off a delicate balancing act, showing still-brisk gains in job growth for April, but enough cooling off to sate the market’s hunger for some hope of Federal Reserve rate cuts this year.
The Labor Department reported Friday that nonfarm payrolls grew by 175,000 in April, falling behind economists’ estimates of 240,000. The headline unemployment rate ticked higher to 3.8% to 3.9%, coming in slightly ahead of calls for 3.8%. March payrolls were revised higher, to 315,000, while February’s figure was revised lower, to 236,000.
Here’s a brief look at the jobs report’s most pertinent details, which illustrate a still-strong economy:
- April payrolls: +175,000 (vs. +240,000 est.)
- April unemployment: 3.9% (vs. 3.8% est.)
- April hourly earnings: +0.2% (vs. +0.3% est.)
- March payrolls (revised): +315,000 (vs. +303,000 previously)
- February payrolls (revised): +236,000 (vs. +270,000 previously)
But the numbers, while still good, represented enough of a slowing down that experts and investors alike received it as a signal that the Fed might still be managing its “soft landing.” Hopes were high that the central bank is starting to get the evidence it needs to begin cutting into persistently elevated interest rates. The major indexes opened sharply higher Friday morning, while both economists and market strategists glowed about the data release.
“This month’s slower jobs report, coupled with last week’s weaker than expected GDP report, is a sign for the Fed that the labor market and economy are finally feeling the effects of the aggressive interest rate hike cycle from 2023,” says Steve Rick, Chief Economist at financial services provider TruStage. “Despite missing expectations, signaling an economic cooldown, the labor market has still maintained a pattern of growth and consumers can be cautiously optimistic that the Fed will be able to successfully lower inflation while also avoiding a recession.”
In other words, says David Russell, TradeStation Global Head of Market Strategy, “Goldilocks could be making a comeback.”
“Worries about wage pressures have dragged on the market recently and today’s number relieves some of those fears,” he says. “The first quarter had several difficult numbers on the inflation front, but the second quarter might be starting on a cooler footing. The case for rate cuts got a little stronger today.”
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Digging deeper into the April jobs report …
Health care was strong yet again, adding another 56,000 jobs last month. Social assistance jobs increased by 31,000, transportation and warehousing added 22,000 jobs, and retail trade employment improved by 20,000.
Construction (+9,000) and government employment (+8,000) cooled off significantly from March, while most other industries saw little change.
Wage growth, meanwhile, still ticked higher, by 0.2%, but came in shy of expectations for 0.3%.
“Markets and the Fed are likely to be breathing a collective sigh of relief at the prospect of cooling wage inflation,” says Jason Pride, Chief of Investment Strategy & Research at Glenmede. “Wages are a key input in the cost structure for many services, which continue to be the problem children in the CPI basket.”
Expert Reactions to April’s Jobs Report
Here’s what strategists, financial managers, and other experts had to say about the April employment situation:
Matt Peron, Global Head of Solutions, Janus Henderson Investors
“The NFP report was a big sigh of relief for markets, with a softer job market and importantly a softer average hourly earnings readout. Taken together, this should give markets some hope that inflation is not as sticky as feared and raises the possibility of getting back on the disinflation trend we saw last year. In terms of markets, this should be a big boost given the negativity around sticky inflation of late, and if confirmed, can bring the prospect of rate cuts back into the picture for 2024.”
Joe Gaffoglio, President, Mutual of America Capital Management
“The slower jobs report will be welcome news to the Federal Reserve and signals that interest rate hikes are impacting a labor market that has been extremely resilient over the past few years. The Fed clearly stated that it is taking a cautious approach on the timing of any interest-rate cuts to ensure that inflation is well contained, and this could lead to continued pressure on the jobs market in the months to come.
“Despite today’s report, and government data for March that showed a cooling labor market overall, workers have generally benefitted from the robust job market and wage growth the past few years. However, low- and middle-class consumers are likely to feel increasing pressure on their budgets, as interest rates along with prices of goods and services remain persistently high. Given the significant impact of consumer spending on the U.S. economy, we continue to closely monitor early warning signs regarding consumer health, such as the recent declines in consumer confidence.”
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Alexandra Wilson-Elizondo, Co-Chief Investment Officer for Multi-Asset Solutions, Goldman Sachs Asset Management
“[The report] should be perceived by markets as a welcome breath of fresh air, as it will hush the hawkish undertone in the market and any recent stagflation fears. We continue to look through the debate around timing of cuts to the fact that the data, in aggregate and observed over a longer time period, will drive a non-recessionary cutting cycle. This should be positive for risk assets and bonds. That said, this cutting cycle, will not be symmetric (fewer and slower cuts) to the hiking cycle.”
Sonu Varghese, Global Macro Strategist, Carson Group
“The softer-than-expected payroll report suggests there is no heat in the economy that should keep inflation persistently high, which increases odds for rate cuts this year. This report will re-emphasize the ‘soft-landing’ narrative.
“At the same time, the labor market remains strong. Payroll growth is averaging 242,000 over the last 3 months (above the 2019 average of 166,000) The unemployment rate has stayed below 4% for 27 straight months. Even better, the prime-age (25-54) employment population ratio rose to 80.8%, which is higher than at any point between 2001 and 2019.”
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Jason Pride, Chief of Investment Strategy & Research, Glenmede
“One month does not make a trend, but today’s jobs report likely gives the Fed some much needed assurance that higher rates may be starting to do their job. Especially for a tight labor that has been a key tailwind for ongoing inflation, a bit of incremental softening may not necessarily be an unwelcome development, but further progress will need to be seen before investors can expect imminent rate cuts from the Fed. Absent any meaningful changes in the macro backdrop, 1-2 rate cuts this year beginning around the fall is a reasonable base case.”
Steve Rick, Chief Economist, TruStage
“We expect monthly job growth to slow over the next few months as the demand for labor slowly ebbs with a cool down in the economy. The slower job growth this month is a sign that cycle is already in progress—which will hopefully result in a decrease in inflation. We expect that the total job growth in 2024 will drop closer to the average from the 2010s of 2.2 million, bringing unemployment to the long run average of around 4%.”
Paul Mielczarski, Head of Global Macro Strategy, Brandywine Global
“Moderation in employment growth together with softer wage growth revives prospects for Fed rate cuts in the coming months. Our view has been that the surprisingly strong topline macro data is likely hiding some latent weakness. However, month-to-month employment numbers are notoriously noisy, so a June rate cut likely is off the table. But if the next two inflation prints are softer, the Fed could realistically start cutting rates in July. Bringing forward Fed easing expectations supports government bonds, credit, and emerging market assets. It should also reverse the recent rally in the USD. The USD has benefited from the recent change in expectations for the Fed to remain on hold for most of 2024.”
