The U.S. economy added fewer jobs than expected in April while the unemployment rate rose, raising hopes that the Federal Reserve can cut interest rates in the coming months.
Nonfarm payrolls rose 175,000 month-over-month, below the Dow Jones Consensus estimate of 240,000, the Labor Department’s Bureau of Labor Statistics reported Friday. The unemployment rate rose to 3.9%, although it was expected to remain stable at 3.8%.
Average hourly wages rose 0.2% from last month and 3.9% from a year ago, both below consensus estimates and an encouraging sign for inflation.
The unemployment rate reached its highest level since January 2022. A broader rate that includes discouraged workers and those who work part-time jobs for economic reasons also rose slightly to 7.4%, the highest since November 2021. The labor force participation rate, that is, those who those actively looking for work remained unchanged at 62.7%.
Wall Street was already set for a higher open, and futures tied to major stock market averages added to gains after the report. Treasury yields fell after being little changed before the release. The report raised the prospect of a “Goldilocks” climate in which growth continues, but not at a pace so fast that the Fed would be forced to further tighten monetary policy.
“This report hit the jackpot,” said Dan North, senior economist at Allianz Trade. “What do you desire at this point in the cycle?” We have raised interest rates quite high, so you would expect the job market to slow down a bit. But we’re still at a pretty high level.”
Consistent with recent trends, healthcare led job creation with an increase of 56,000 jobs.
Other sectors that recorded significant increases included social assistance (31,000), transport and warehousing (22,000) and retail (20,000). Construction added 9,000 jobs, while the public sector, which had shown solid gains in recent months, added just 8,000 jobs, down from an average of 55,000 jobs in the previous 12 months.
Revisions to previous months meant March’s gain increased to 315,000, down 12,000 from the original estimate, and to 236,000 in February, down 34,000.
Household employment, which is used to calculate the unemployment rate, increased by just 25,000 month-on-month. The number of full-time employees increased by 949,000 month-on-month, while the number of part-time employees fell by 914,000.
The report comes two days after the Fed again voted to keep borrowing costs stable and keep its benchmark federal funds rate in a targeted range of between 5.25% and 5.5%, the highest level in more than 20 years.
After the decision, Chairman Jerome Powell called the labor market “strong” but noted that inflation was “too high” and this year’s economic data suggested “no further progress” in returning inflation to 2 percent. The Fed’s goal would be achieved.
However, market fortunes changed after the jobs report pointed to easing labor market conditions and weaker wage increases. Traders have priced in a strong chance of two rate cuts by the end of 2024, with the first cut expected to come in September, according to CME Group.
“This is the jobs report the Fed would have produced,” said Seema Shah, chief global strategist at Principal Asset Management. “The first negative surprise in payrolls in several months, as well as the decline in average hourly wage growth, will bring interest rate cut dialogue back into the market and perhaps explain why Powell was able to remain dovish on Wednesday.”
Although inflation is well below its peak in mid-2022, it is still well above the central bank’s comfort zone. Most reports this year have shown inflation at about 3% per year; The Fed’s preferred measure, the core price index for private consumer spending, was most recently at 2.8%.
Higher prices have put upward pressure on wages, part of an inflation picture that is keeping the Fed on the sidelines despite widespread market expectations that the central bank would aggressively cut interest rates this year.
In fact, most Fed officials had mentioned the likelihood of rate cuts in their public comments. However, at his post-meeting news conference on Wednesday, Powell did not mention the likelihood of cutting interest rates at some point this year, as he has done in the past.
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2024-05-03 13:45:01
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