US job growth was stronger than expected in April, showing the resilience of the economy even as the Federal Reserve signaled it was “close” to ending the cycle of interest rate hikes.
The United States added 253,000 nonfarm jobs last month, according to a report from the Bureau of Labor Statistics on Friday, confounding expectations of a decline.
The overall wage increase was partially offset by downward revisions to the previous two months’ data, but the unemployment and wage growth numbers also pointed to continued tightness in the labor market, raising doubts about whether the Fed will start cutting interest rates soon. as investors had expected.
The two-year government yield, which moves with interest rate expectations, jumped to session highs immediately after the data was published. It was up 0.1[ads1]5 percentage points on the day to 3.94 percent. Traders in the futures market – who before the report had priced in the possibility of a rate cut as soon as July – reduced those bets.
“This report paints a picture of a labor market that is hot, and that would not justify cutting interest rates,” said Eric Winograd, senior fixed income economist at AllianceBernstein.
The unemployment rate fell to 3.4 percent last month, compared with consensus forecasts of 3.6 percent. Hourly wage growth strengthened by 0.5 per cent month-on-month, and was up 4.4 per cent year-on-year.
James Bullard, president of the St Louis Fed, said the labor market remains “very tight” and it will take time for demand to ease.
“The rumors of the imminent collapse of the economy are greatly exaggerated,” he said at an event on Friday. He added that bringing down inflation would not require a sharp rise in unemployment.
Job growth in April was particularly strong in professional and business services, while employment in the health and leisure and hospitality sectors also increased strongly.
Jack Janasiewicz, a portfolio manager at Natixis Investment Managers, said hiring was strongest in areas that had suffered labor shortages for some time or were less economically sensitive, while growth was weaker in more interest-sensitive areas such as retail and manufacturing.
Wages are a major factor in inflation, particularly in the service sector, so economists and investors watched the numbers closely for signs that higher interest rates were slowing the economy and driving down inflation.
The data comes after the US central bank announced its 10th consecutive interest rate hike on Wednesday, lifting the benchmark federal funds rate to a range of 5 to 5.25 percent. Fed Chairman Jay Powell said the labor market remained “extraordinarily tight” but added that “there are some signs that supply and demand . . . are coming back into better balance.”
Data released earlier this week backed Powell’s assessment, showing a sharper-than-expected drop in job vacancies to the lowest level since April 2021. However, Friday’s numbers are the latest reminder that inflationary pressures remain high.
Powell stressed on Wednesday that it will still take some time to bring inflation down to the Fed’s 2 percent target, but investors have bet that the central bank will move quickly to cut interest rates, with the first coming as soon as July.
“The labor market remains resilient – wage growth is slowing, but you could argue that it is not fast enough . . . It’s still a low probability, but I don’t think you can write it off and say further increases are completely off the table,” Janasiewicz said.
Investors will scrutinize the release of several economic reports next week to determine whether the Fed will follow through with a pause.
“They would be very foolish to push interest rates any higher,” said David Kelly, chief strategist at JPMorgan, referring to his concerns about a worsening of the banking crisis. “I think they’ve been foolish to push them as high as they have.”
The Fed’s quarterly survey of senior loan officers due on Monday will provide insight into how the collapse of several regional banks has affected lending elsewhere, while Wednesday’s consumer price report will signal whether the Fed’s efforts to tame inflation are bearing fruit.
“If the Fed ends up surprising people in June [with a rate rise]it’s less likely to be a reaction to employment numbers and more likely to be a reaction to inflation numbers, said David Donabedian, chief investment officer at CIBC Private Wealth.
“We still believe we will see recessionary conditions unfold for some time to come [the] second half of the year. . . but the market has priced in too much too quickly on the magnitude of the Fed pivot.”