Weak US Jobs Data Boosts Rate Cut Expectations –Note
Job creation in the US was weaker, unemployment higher and wage growth more subdued than expected in the April employment report, ING said in a note. With Fed Chair Powell leaning dovish at Wednesday’s press conference this has breathed new life into Federal Reserve interest rate cut calls.
US payrolls in April were weaker than expected, boosting expectations of a September rate cut by the Federal Reserve. US payrolls in April were weaker than expected, boosting expectations of a September rate cut by the Federal Reserve
Not a terrible report, but clear signs of softening
Analysts think maybe Fed Chair Powell did get an early look at the jobs report given his dovish leaning press conference on Wednesday. Non-farm payrolls rose 175k in April versus the 240k consensus (ranged between 145k and 280k in the Bloomberg survey) and there were 22k of downward revisions to the past couple of months.
The unemployment rate moves up to 3.9% from 3.8% while wage growth was softer than expected at 0.2% month-on-month, bringing the annual rate of growth to 3.9%, the slowest rate since June 2021. Rounding out the key numbers we also see the average work week dropped to 34.3 hours from 34.4.
“None of this is terrible – it really isn’t a ‘bad’ report – but it is the first time we have seen every part of the report come in weaker than expected for a very, very long time”, ING said.
Consequently, analysts noted that the market is fully discounting a 25bp September interest rate cut once again with a second one before the end of the year. Only 28bp of rate cuts were priced for 2024 as a whole just ahead of Wednesday’s FOMC meeting.
Looking at the details in the report, ING analyst saw that private education and healthcare services continues to be the main engine of job creation – contributing 95k of the 175k total, but leisure & hospitality (5k) and government (8k) are much weaker than has usually been the case over the past 18 months.
Meanwhile the household survey, which is used to calculate the unemployment rate, showed employment rising only 25k with the number of people classifying themselves as unemployed rising 63k.
The outlook for the jobs market isn’t great with the ISM employment surveys and the National Federation of Independent Business hiring intentions series all pointing to further moderation in job creation through the summer.
