Published on Friday, May 3, 2024
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Unemployment rate rises to 3.9% and wages come in softer than expectations.
The jobs report for April was a surprise to the downside. At 175,000, it was far off the median expectation of 240,000. The unemployment rate was expected to stay at 3.8%. Instead, it rose a basis point to 3.9%. That still leaves unemployment within the 3.7%-to-3.9% range it has seen since August 2023, according to the Bureau of Labor Statistics.
Revisions for February and March jobs numbers brought the total down by 22,000.
Average hourly earnings were up 0.2%, making a 3.9% increase over the previous 12 months. The median expectation was a 4.0% year-over-year increase.
While the number of long-term unemployed, meaning those without a job for at least 27 weeks, was largely unchanged at 1.3 million, they represented 19.6% of all unemployed people. An alterative and broader measure of unemployment — the so-called U-6 that includes the official figure plus all persons marginally attached to the labor force, those employed part time for economic reasons, and persons marginally attached to the labor force — was 7.4%. That rate has been increasing over the last year. In April 2023, it was 6.6%.
The biggest areas of job gains were in healthcare (56,000 jobs), social assistance (31,000), and transportation and warehousing (22,000). Retail was up 20,000. Construction, which had been adding an average of 22,000 jobs a month, saw 9,000 more in April.
Money markets had already been shifting their views of what might be coming, according to a Bloomberg report. While they had priced in a 25 basis point cut in December, in anticipation of the jobs report, that moved to November, with a 50% chance of two rate reductions this year.
Yields on the 2-year Treasury dropped by about 10 basis points on the news. The 10-year showed a similar drop.
“The demand for labor is slowing which will eventually ease inflation pressures, giving the Fed some leeway to cut rates later this year,” said Jeffrey Roach, chief economist for LPL Financial, in emailed remarks. “Slower payroll growth and fewer hours worked imply the economy is slowing at a measured pace. This jobs report is consistent with the soft landing narrative.”
Larry Tentarelli, chief technical strategist for the Blue Chip Daily Trend Report, in emailed remarks called it a “Goldilocks payrolls report” with “some weakness in the labor market to take pressure off bond yields and maybe accelerate rate cut expectations.” He added, “Today’s payrolls report should be viewed as a net positive, as the labor market shows some signs of cooling, which is a step toward Fed rate cuts. Our view is that core PCE inflation is still a concern and we would like to see that start to trail lower over the next few months. If inflation does not breakout and jobs data stays moderate, a first rate cut could be due in September, but we expect the Fed to remain very dependent on incoming data, meeting by meeting.”
It is only one month of data. It will likely take the Fed a full quarter of similar cooling to feel more confident about eventual rate cuts.