Key takeaways
- 253,000 new jobs were added to the U.S. economy in April, smashing forecasts of 180,000
- Wages were up 4.4% annually, accelerating from March figures
- It’s a mixed picture for the Fed, who just raised interest rates for tenth time in a row
The U.S. jobs economy has continued to defy expectations and, at times, logic by adding far more jobs than expected. It’s a sign of the economy’s resilience, but wage acceleration is a concern for the Fed as it continues what’s turning out to be a long battle against high inflation.
Stocks were up and Treasury yields rose at the news, while the dollar strengthened. But now Wall Street is wondering if there’s another rate rise on the cards if a too-hot jobs market is tampering with the Fed’s carefully laid plans. We’ve got the latest on what the data says and what it means.
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What did the U.S. jobs report say?
The U.S. economy added 253,000 new jobs in April, according to the latest non-farm payrolls count data, which blew forecasted figures out of the water. Analysts had been predicting 180,000 new jobs last month, a sign that the economy is healthier than expected despite persistent interest rate rises.
The unemployment rate also stayed static at 3.4% instead of the 3.6% predicted. That’s actually a small drop from the 3.5% rate seen in March at a time when unemployment levels are at their lowest in decades. In more concerning news for those worried about inflation, wage growth grew by 4.4% annually, up from 4.2% seen in March. It was the same for hourly wages: they climbed 0.5% in April, ahead of March’s 0.3% figure.
Crucially, there was also a revised markdown for the number of jobs added in March and February. The two months were changed down by a combined 149,000 jobs, suggesting the jobs market isn’t quite as hot as is initially being reported and jobs growth is declining, albeit slowly.
Most of the jobs created were driven by the professional services, healthcare and leisure and hospitality industries. The only sector to see a notable drop was the temporary help services industry, which declined by 23,000 roles in April.
How did the markets react?
The U.S. dollar climbed by 0.24%, but analysts predict that it will fall back to previous levels. Stocks also opened higher at the news: the S&P 500 and Dow Jones were both up by 0.94%, while the Nasdaq rose 0.84%.
Treasury yields also rose, with the two-year Treasury bills hitting 3.87% Friday morning, up from 3.73%. The ten-year Treasury yields, which is one of the more significant markers of the economy’s health, rose to 3.44% from 3.35%. It’s a sign investors believe we haven’t seen the last of rate rises, but there’s plenty of data between now and then to give a clearer picture.
Is there any other data about jobs?
The ADP jobs report from earlier this week echoed a similar trend, though it differed in wage growth. Private payrolls hit 296,000 for April, surpassing the 133,000 prediction from Dow Jones.
There were similar gains in the same industries – the hospitality and leisure, health services and construction all made employment gains – but the banking and manufacturing sectors both saw job losses. Annual wage growth slowed, hitting 6.7% increase annually compared to 6.9% in March and 7.2% in February.
At first this seemed like good news: weakening wages but a strong jobs market gave the Fed some leeway in their predictions about avoiding a recession. But now the non-farm payroll data has been added into the mix? It’s not looking so certain.
What does this mean for a potential recession?
Just this week Jerome Powell said “Avoiding a recession is, in my view, more likely than having a recession.” He might have egg on his face after all.
Usually, a strong jobs and labor market isn’t a good thing when the economy suffers from high inflation. The wage growth, one of the key drivers of inflation, will be especially concerning to investors and the Fed alike, as it suggests the Fed won’t be reaching its 2% target anytime soon.
On the other hand, Fed chair Jerome Powell was also remarkably upbeat about the economy’s health because of the jobs market. After the Fed’s tenth interest rate hike in a row, he commented that the jobs market’s resilience gave some hope mass unemployment wasn’t in the near future. And we could also see April’s job figures revised downwards, just like March and February have just seen, which would mean the figure today is a bit of a misnomer. But it’s a lot of ‘ifs’ and ‘buts’ to work with.
Once again, the Fed is treading a delicate path. It wants a cooler jobs market so wage growth isn’t driving inflation, but it also doesn’t want mass unemployment as part of a recession. So, the latest data paints a pretty mixed picture and doesn’t altogether rule out further rate rises like Wall Street is hoping for.
The bottom line
The jobs market is just doing its own thing right now. Even when interest rates are at their highest in decades, a banking crisis rages on, whispers of a recession have persisted, and yet unemployment remains historically low.
It’s a head-scratcher, for sure. But we know that the jobs data only forms part of the picture. We’ll have to wait and see whether other areas of the economy are weakening and inflation is dropping to see if the jobs market is an outlier or if the economy is truly resilient. Our advice? Buckle up.
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