Job Gains Slow In April, but Too Soon to Say the Trend Has Changed

In April, job growth cooled somewhat after several months of gains above expectations, but employers continued to show brisk demand for new workers.

The Bureau of Labor Statistics reported that nonfarm payroll employment rose by 175,000 in April, well below consensus expectations for an increase of 230,000. But with the Federal Reserve squarely focused on stickiness in inflation, one month of below-expectations job growth likely does little to accelerate the timing of rate cuts, which are now widely predicted to start in the second half of 2024. And though April job gains were below expectations, a 175,000 increase still reflects continued healthy economic growth.

“Despite the big headline miss, we should wait for more months’ data before proclaiming a slowdown in the job market,” says Preston Caldwell, chief US economist at Morningstar. “While headlines will focus on the month-over-month gains for April drastically underperforming consensus ... it’s important not to overreact to month-to-month fluctuations in this volatile data series.”

April Jobs Report Key Stats

• Total nonfarm payrolls climbed by 175,000 versus an upward-revised 315,000 in March.
• The unemployment rate ticked up to 3.9% from 3.8% in March.
• Average hourly wages rose by 0.2% to $34.75 after rising 0.3% in March.

No Dramatic Shift In Hiring Trends

Caldwell notes that using annualized three-month rates, nonfarm payroll employment growth was 1.9% in April. “That’s down slightly from the 2.1% as of March, but hardly a dramatic shift,” he says.

Under the hoods of the jobs report, the BLS says hiring gains occurred in healthcare (in social assistance), as well as in transportation and warehousing. “At the industry level, the pattern of job growth is holding steady,” Caldwell explains. “Job growth in the healthcare and leisure categories was 3.4% annualized in the past three months, accounting for about one-half of aggregate job gains over that period.”

It was a similar story for the unemployment rate, which ticked up to 3.9% in April from 3.8% in March. “The unemployment rate changed little,” the BLS said in its report, noting that the number of unemployed was largely stable at 6.5 million. The unemployment rate has hovered in a tight range of 3.7%-3.9% since August 2023.

If there’s a downtrend in job growth, it could be at least temporarily offset by increased growth in average hours worked. Growth in average hours worked was negative 0.6% year over year as of March (and has been in negative territory since 2022), but it improved to negative 0.2% year over year as of April. If employment growth falls but is offset by increased growth in average hours worked, the growth in aggregate hours worked would remain steady.

That would mean businesses aren’t planning to produce less output despite the reduced hiring, and that growth in labor compensation (which powers consumer spending) would hold steady. That said, we’re unlikely to see employers adding to hours if job growth dips far below a normal pace (say, below 1% annualized growth).

Wage Gains Under Control

There was potentially good news concerning inflation in the report’s wage data. Average hourly earnings rose 0.2%, softer than the 0.3% increase economists expected. “The data continues to conform to a story of briskly expanding labor demand and supply, with the latter keeping wage growth under control, and even allowing for a slight downtrend,” Caldwell says. He notes that private average hourly earnings grew 3.9% year over year in April, not far above the about 3.5% wage growth rate he estimates is consistent with 2% inflation.

Fed Expectations Little Changed After Jobs Report

In the wake of the softer-than-predicted report, expectations for Fed rate cuts by year-end shifted slightly toward a greater chance of two or three quarter-point reductions. According to the CME FedWatch tool, which tracks bets on the direction of interest rates, odds favor the central bank’s rate target being reduced to 4.75%-5.00% by December from its current level of 5.25%-5.50%. The bond market leans toward the first cut coming in September. At the start of the year, traders had been expecting five rate cuts in 2024, with the first happening in March.

For Caldwell, it would take additional months of slower job growth for the Fed to accelerate any lowering of interest rates. “Additional months of job growth at the month-over-month rate in April—1.3% annualized—would make the Fed quicker to pull the trigger on rate cuts in the second half of 2024 if a slowdown in inflation also occurred,” he says. “As the data stands today, not much changes in the Fed’s calculations.”