April showers on the jobs market

Summary

The employment situation report for April kicked off the second quarter with signs that the labor market is cooling. Nonfarm payrolls increased by 175K in the month, below consensus expectations for a 240K gain, while the unemployment rate rose a tenth to 3.9%. Meantime, average hourly earnings growth slowed and, at just 3.9% year-over-year, is not too far above the 3.3% average that prevailed in 2019.

Overall, today's data point to a jobs market that is still tight, but not nearly as hot as it was a year or two ago. This should support a further slowdown in inflation as the year progresses, even if improvement proceeds only gradually. We think it is unlikely the FOMC will be ready to start cutting rates by its next meeting in June, but our base case for the first rate cut to occur at the September 18 FOMC meeting remains firmly in play based on today's employment data.

Employment underwhelms to start Q2

The April employment report leaves the jobs market looking a little more vulnerable to the Fed's efforts to cool the economy down. Nonfarm payrolls registered an increase of 175K compared to a prior three-month average of 276K (now 269K incorporating revisions). The increase fell short of consensus expectations for a 240K gain in what is only the fourth time in the past two years the initial print undershot the consensus.

On an industry basis, job growth remained solid in healthcare & social assistance (+87K), while picking up in manufacturing (+8K). However, elsewhere the picture was underwhelming. Leisure & hospitality and construction employment slowed sharply relative to their Q1 averages, suggesting the mild winter weather and early Easter/spring breaks may have pulled some hiring forward. Government hiring also downshifted notably, up by just 8K compared to an average of 55K the prior 12 months. Higher-wage industries also struggled to add jobs, with payrolls declining in information, professional & business services and mining, flat within the utilities industry, and up only modestly in the financial industry in April.

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