Powering through: A solid April employment report

Summary

The April employment report showed that the U.S. labor market remained resilient in April despite the turmoil that swept financial markets. Nonfarm payrolls increased by 177K, although downward revisions to job growth in February and March took some shine off of the April number and left the recent pace of hiring little changed at a three-month average pace of 155K. The breadth of hiring across industries was solid, with only a few modest weak spots in areas such as retail trade, manufacturing and the federal government. The separate household survey painted an even rosier picture. The unemployment rate held steady at 4.2% despite a robust increase in the labor force.

Higher tariffs threaten both sides of the Fed's dual mandate of full employment and price stability. With spot inflation already above the central bank's 2% target and the labor market still seemingly hanging on, we do not expect the FOMC to signal imminent policy easing at its meeting next week. There is just one more employment report to be released between now and the June meeting, and with nonfarm payrolls still growing at a solid pace and the unemployment flat lining around 4.2%, the odds of a June rate cut have fallen, in our view.

That said, with monetary policy still somewhat restrictive and weaker economic growth expected to weigh on the labor market in the months ahead, we still think the FOMC will reduce the federal funds rate this year by more than the 50 bps implied by the median projection in the March meeting's Summary of Economic Projections. We will update our fed funds forecast and broader economic projections next week.

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