In April, the U.S. economy added fewer jobs than expected, with nonfarm payrolls increasing by 175,000, below the estimated 240,000. The unemployment rate also rose to 3.9%, higher than the expected 3.8%. Average hourly earnings rose 0.2% from the previous month and 3.9% from a year ago, below consensus estimates. Despite the lower than expected job growth, Wall Street responded positively to the news, with futures tied to major stock market averages seeing gains. Treasury yields also tumbled, raising hopes of a potential interest rate cut by the Federal Reserve.
The jobless rate tied for its highest level since January 2022, with a more encompassing rate that includes discouraged workers and part-time workers for economic reasons also rising to 7.4%, the highest since November 2021. The labor force participation rate remained unchanged at 62.7%. Health care led job creation with a 56,000 increase, while other sectors such as social assistance, transportation and warehousing, and retail also showed significant rises in employment. Revisions to previous months’ data showed slight adjustments to job gains, with March revised up to 315,000 and February revised down to 236,000.
The Federal Reserve recently voted to hold borrowing costs steady, with Chair Jerome Powell characterizing the job market as strong yet noting that inflation is still too high. Following the release of the jobs report indicating an easing labor market and softer wage increases, traders priced in a strong chance of two interest rate cuts by the end of 2024, with the first cut expected in September. Market analysts believe this jobs report will bring the rate cutting dialogue back into the market, especially as inflation remains above the central bank’s comfort zone. Despite inflation coming down from mid-2022 highs, reports still show inflation around 3% annually.
Most Fed officials had been hinting at the likelihood of rate cuts in their public comments, but Powell’s lack of mention of rate cuts at the recent news conference has left some uncertainty. The Fed’s preferred measure, the core personal consumption expenditures price index, was at 2.8% most recently, indicating that inflation is still a concern. Higher prices have been putting upward pressure on wages, contributing to the inflationary picture that has kept the Fed from aggressively cutting rates this year. However, market expectations have shifted post-jobs report, with many now expecting rate cuts later in the year. This report comes at a crucial time as the Fed seeks to balance a strong job market with concerns about inflation and the overall economic outlook.
