April Employment Report Hints at Some Softness

April Employment Report Hints at Some Softness

• Nonfarm payroll gains for April were 175 thousand vs. 244 thousand expected and 315 thousand in March (revised up from an initial 303 thousand). Meanwhile, February was revised lower by 34 thousand jobs, and that continues a year-long trend of downward two-month revisions.  Private sector jobs increased 167 thousand vs. 195 thousand expected and 243 thousand in March (revised up from an initial 232 thousand).

 

• Yet again, the Household Survey (which generates the unemployment rate, etc.)reported a much different number on jobs. In March, the survey reported a pickup of 498 thousand jobs but for April job gains slowed to 25 thousand. As we’ve said before, combined with the usual downward revisions to the Establishment Survey, and the ongoing volatility in the Household Survey, it does give one pause as to how much to conclude definitively from these BLS reports, at least the releases.

 

• Job gains were notable in healthcare/social assistance (87k), and transportation/warehousing (22k). Job losses were concentrated in temporary help services at 16 thousand.  This is a gathering trend and could signal some softening with firms reducing temp help as demand slows.

 

• Wage gains moderated after back-to-back 0.3% MoM gains with Average Hourly Earnings gaining 0.2% vs. 0.3% expected. The year-over-year pace decreased to 3.9% vs. 4.0% expected and 4.1% in March. Average weekly hours decreased 0.1 hours to 34.3 hours, missing the 34.4 expectation which matched the hours in March. Weekly hours peaked at 35.0 a year ago, and it seems they are settling in that low 34 hour range, certainly not a sign of increasing labor demand.

 

• The moderation in wage gains is exactly what the Fed wants to see to tamp down the potential for a wage-price spiral. Ideally, the Fed wants that YoY number to drift to 3.5%, or less, just above the 2% inflation benchmark. So, monthly prints in the 0.1% – 0.3% range will eventually do the trick.

 

• The unemployment rate rose one-tenth to 3.9%, above the expected 3.8% as the Household Survey reported an increase of 63 thousand in the ranks of the unemployed as the modest increase of 87 thousand in the labor force (the denominator in the unemployment rate calculation) didn’t all manage to find a job during the month. That small labor force gain halts some impressive gains over the last two months, which could be another sign of some slowing in the labor market, albeit slight at this point.

 

• The increase in the ranks of the unemployed and small increase in the labor force, as per the Household Survey, kept the Labor Force Participation Rate unchanged at 62.7% matching the expectation.   The participation rate a decade prior to the pandemic averaged 63.3% while the average over the past year has been 62.6%. We seem to be reaching a near-term plateau of sorts in the expansion of the labor force.

 

• All-in-all, this a bond friendly report and clearly indicates some softening in the labor market, but on net, job gains of 175k pre-pandemic would be considered healthy. The moderation in wage gains will be welcomed by the Fed while the unemployment rate increase comes more from an increase in the labor force rather than a material increase in the ranks of the unemployed. The Fed will like the slowing wage gains, and frankly probably like the slowing in the headline job gains. The unemployment rate increasing one-tenth will be less of a concern given it’s more from the labor force growing (a bigger pool of potential workers). I think it seals the thought Powell had on Wednesday that the current fed funds rate is sufficiently restrictive to slow the labor market (read: no more hikes). Now, if only inflation will cooperate.

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Average Hourly Earnings (YoY) Dip Below 4% For First Time Since Pandemic Gyrations –  Fed Wants This in Lower 3’s

Source: Bloomberg

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