Market Proving Resilient as Jobs Data Rocks Interest Rate Projections
After an encouraging jobs report, expectations for the net Fed interest rate cuts are taking a hit.
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Did the April job creation beat Wall Street?
Equity markets came into the event already riding a bit high. Sure, while both Amazon AMZN and Apple AAPL disappointed investors on Thursday evening, news that Beijing was evaluating the possibility of beginning trade negotiations with the Trump administration put a little pop in the step of those trading the market.
This week, investors had already experienced weakness in March job openings, April private sector job creation and weekly initial and continuing jobless claims. Hence, there was a bit of investor/trader tension visible as Friday morning's release by the Department of Labor's Bureau of Labor Statistics approached.
What's on the line? Oh, nothing much. Just how Fed Chair Jerome Powell structures his press conference next Wednesday afternoon and exactly how many interest rate cuts markets might price in for the Fed for the rest of the year and beyond. In other words, this is what matters.
Job Creation
For April, from the Establishment Survey, the Bureau of Labor Statistics (BLS) is reporting non-farm payroll (NFP) growth of 177,000 seasonally-adjusted positions, which was indeed well above projections for about 135,000. However, March payrolls were revised lower by 43,000 (to 185,000), and February payrolls were revised lower by 15,000 (to 102,000). That leaves net non-farm payroll job creation of 119,000, which actually falls short of where consensus thought this metric would be after this release.
Interestingly, this Establishment Survey number printed in between the other two measures that we use to gauge job creation and none of them are close to being in line with each other. Earlier this week, the ADP Employment Report for April private sector job creation crossed the tape at 62,000, well short of the 114,000 that economists were looking for, and down from 147,000 jobs in March.
Perhaps even more interestingly, from the Household Survey, the number of persons claiming to be employed increased by 436,000 individuals in April after that number grew by 201,000 individuals in March. Why is job creation so much stronger when households are polled than when businesses are asked? That, I can't answer. Multiple job holders do at times skew the numbers, but that subset of workers should take establishment-driven job creation higher, not sheer numbers of employed individuals.
Key Data
The Unemployment Rate, which is drawn from the Household Survey, which was stronger than the Establishment Survey, held steady at 4.2%, even as the Participation Rate improved from 62.5% to 62.6% and the Employment to Population Ratio improved from 59.9% to 60%. This implies that as more individuals got off of the couch and looked for work, that the economy better absorbed the new members of the labor force (that grew by 518,000 persons) than it did in March.
Sticking with the Household Survey, as a net 436,000 new individuals found work, the number of individuals working part-time for economic reasons decreased by 90,000 persons and the number of individuals working part-time for non-economic reasons increased by 98,000 persons. The implication here would be that 428,000 (give or take) full-time jobs were filled.
This is very impressive. For years until the last two months, full time employment had been in decline. This March/April rebirth in full-time employment becoming a trend would be a major plus for the U.S. economy. The Underemployment Rate, as result of this data, dropped to 7.8% from 7.9% in March and 8% in February.
Average weekly hours provided another positive, holding steady at 34.3 hours as March was revised up to 34.3 hours from a below trend 34.2 print. This makes two months where average weekly hours for full-time employees is back in its more normal 34.3 to 34.5 range after having been below that range for six of the prior 10 months, having put in a bottom of 34.1 in January. That equaled a post 2010 low.
Now, we'll turn to wage growth, which was a little sloppy. Average hourly earnings decelerated to month-over-month growth of 0.2%, down from 0.3% in March. On a year-over-year basis, average hourly earnings slowed to growth of 3.8% from 3.9% in March. April was the weakest month for year-over-year wage growth since last July's 3.6% print.
Demographics
The unemployment rate along gender, ethnic background and education:
- Adult Men: increased from 3.8% to 4.0%
- Adult Women: head steady at 3.7%
- Teenagers: decreased from 13.7% to 12.9%
- White: increased from 3.7% to 38%
- Black or African American: increased from 6.2% to 6.3%
- Asian: decreased from 3.5% all the way to 3.0%.
- Hispanic or Latino: increased from 5.1% to 5.2%
- High School Dropouts: increased from 5.8% to 6.2%
- High School Graduates: decreased from 4.1% to 4.0%
- Some College/Associate Degrees: increased from 3.5% to 3.7%
- Bachelor's Degrees and more: decreased from 2.6% to 2.5%
My Thoughts
The numbers are mixed. The Household Survey is very strong on job creation. The Establishment Survey is rather weak on job creation on a net basis. That still implies a stronger April than economists had projected.
It's definitely a positive for the economy that part-time workers are finding full-time work and that full-time laborers are being asked to work more hours. The fact that more and more individuals are entering the labor force and are largely being absorbed at a higher rate than they had been as the economy had weakened late 2024 into early 2025. That said, participation hit 62.8% in 2023, so there is some way to go.
Demographically, I find it somewhat troubling that the unemployment rate for men is so much higher than it is for women after the two numbers were roughly equal as recently as February. I find it troubling that, for three of the four racial demographics tracked by the BLS, unemployment is moving higher.
I also find it interesting that the unemployment rate is moving lower for both high school and college graduates, but not for those who did not finish high school or started college and did not finish. At least the trend of rising unemployment for college grads seems to be reversing to some degree. High school grads have caught up to where they were a year ago (4.0% unemployment), but college grads still have some ground to make up to reach the unemployment rate of 2.2% that this group "enjoyed" in April of 2024.
On Policy
Does this slow the talk of recession? Probably.
I think that this report and the "significantly better than the headline" reported Q1 GDP print on Wednesday show that the economy is currently nowhere near entering recession. I am pretty sure that I have found a $185 billion error in the GDP math either in consumption or in inventories (or some mix of the two) that the Bureau of Economic Analysis missed. That negative print will be revised. That said, economic activity is decelerating and is in no way roaring.
Interestingly, the U.S. Dollar Index has sold off sharply since these numbers were released, as equities rallied. However, Treasury yields from the belly of the curve on out to the deep end of the pool all seem to have moved higher as bond traders sell that market.
These markets are sending mixed signals in regard to what the Fed might do going forward. As far as next week's FOMC meeting is concerned, according to futures markets trading in Chicago, the probability for no change made to the target for the Fed Funds Rate has increased from 93% on Friday morning to 98% after the release. The likelihood of a 25 basis-point rate cut on June 18 has dropped from 59% to 44%. That said, 100 basis points worth of rate cuts are still being priced in for 2025, but that probability has dropped from 60% to 52%.
Perhaps the news that China may want to play ball with President Trump is moving markets. Perhaps this "slightly stronger than expected" employment report is moving markets. What's certain is that outside of Treasury debt securities, the thought that interest rate cuts may be a little tougher to come by going forward is not doing any significant damage to U.S. financial markets on Friday morning. Rock on.
At the time of publication, Guilfoyle had no positions in any securities mentioned.
