The U.S. Department of Labor released a report on Friday (May 3) showing that job growth slowed in April, with an increase of 175,000 non-farm payroll jobs, far below expectations, and the unemployment rate rising to 3.9%. These figures mark a reversal in the trend of strong job growth, and also signal a potential interest rate cut by the Federal Reserve.
According to the Department of Labor report, after seasonal adjustments, 175,000 jobs were added in April, lower than the 240,000 predicted by Dow Jones and significantly below the over 300,000 increase seen in March. The unemployment rate rose from 3.8% in March to 3.9% in April. Economists had originally expected the April unemployment rate to remain at 3.8%.
The Department of Labor also revised the job numbers for March upward to 315,000 and downward for February to 236,000 in their report on Friday.
In terms of specific industries, the healthcare sector led the growth with an addition of 56,000 non-farm jobs in April. Other industries with significant job growth included social assistance (31,000), transportation and warehousing (22,000), retail (20,000), and construction (9,000).
It’s worth noting that government jobs, which had shown strong performance in recent months, only saw an increase of 8,000 in April, compared to an average increase of 55,000 over the past 12 months.
Looking at average hourly earnings, a closely watched indicator for inflation, hourly wages increased by 0.2% month-on-month and 3.9% year-on-year in April, both below market expectations. This presents an encouraging sign for the Federal Reserve in terms of curbing inflation.
Olu Sonola, Head of U.S. Economic Research at Lombard Odier Asset Management, commented on the employment report, stating that the slowdown in wage growth is good news for those seeking an early rate cut, and weaker wage growth data is even better news.
However, Sonola also cautioned that one month of data does not represent a trend. Therefore, the Federal Reserve may need to see several months of such slowing trends, along with better inflation data, before making a decision to cut rates.
Florian Ielpo from Lombard Odier Asset Management mentioned that the report may indicate a period of stable interest rates ahead, while the U.S. dollar is likely to gradually weaken.
Following the release of the employment report, market trends shifted according to data from the Chicago Mercantile Exchange. Traders currently anticipate a high likelihood of two interest rate cuts by the Federal Reserve by the end of 2024, with the first cut expected in September.
Seema Shah, Chief Global Strategist at Principal Asset Management, noted that the unexpected dip in job numbers over the past few months, along with the decline in average hourly earnings growth, will bring the rate-cut discussion back to the market.
Publications such as The Wall Street Journal stated that Friday’s report is sure to spark immediate debates among economists and investors, focusing on whether the labor market is just cooling off in a controlled manner or beginning to show more severe pressures under rising interest rates.