Nonfarm Payrolls: Willing, able, and stable

What happened? 

April’s Nonfarm Payrolls report came in at +115,000, well above consensus expectations of +65,000. Revisions from the previous two months were moderate as well with downward revisions in aggregate of only (-16,000). With that in mind, the unemployment rate (U-3) was unchanged month-over-month, stabilizing at 4.3%. It should be noted that the underemployment rate (U-6), which is the percentage of employed people who are working part-time but prefer to be working full-time, ticked up marginally to 8.2% from 8.0%. Wage growth was also modest, undershooting consensus expectations on both month-over-month (0.2% actual vs. 0.3% estimate) and year-over-year basis (3.6% actual vs. 3.8% estimate). This moderation in wage growth is certainly welcomed on the inflation outlook but certainly won’t help the affordability outlook for US consumers.

From a composition standpoint, there’s not an obvious takeaway from today’s report. More pro-cyclical and rate sensitive parts of employment, like construction and manufacturing, were mixed in April. Manufacturing employment declined by (-2,000), breaking its three-month streak of employment expansion, while construction employment expanded by +9,000, its second consecutive month of employment expansions. Trade, transportation & Utilities employment posted strong gains as well with +60,000.

In aggregate, there was something to takeaway for both hawks and doves in this report. On one hand, the moderation in wage growth and uptick in the underemployment rate should help on the inflation front. The mixed bag of results in more pro-cyclical parts of employment don’t paint a particularly robust growth outlook (ex-AI, of course) either. On the other hand, the labor market is clearly showing signs of stabilizing, although it may be a stretch to say that it’s accelerating at this point in time.

What does it mean for investors? 

April’s nonfarm payrolls report pointed to a labor market stabilizing, with hiring modest but holding up better than expected. While job gains moderated, the unemployment rate remained steady, suggesting only limited hiring is needed to keep conditions balanced amid slower labor force growth. Beneath the headline, wage growth came in slightly softer, reinforcing that labor cost pressures are not reaccelerating and remain consistent with a gradual easing in inflation. Sectoral trends were uneven, with services driving gains while manufacturing showed softness. At the same time, underlying indicators point to a more nuanced backdrop. Labor supply appears to be softening, with participation declining and measures of underemployment edging higher, suggesting not all improvement reflects a tighter labor market. Taken together, the report is consistent with a labor market stabilizing rather than strengthening. Futures still reflect expectations for the next rate cut to be delivered by the Fed no sooner than Q3 2027.

JOLTS job openings edged lower in March to 6.9 million, down 56,000 from the prior month and marking the fourth decline in five months, broadly in line with expectations. ADP reported 109,000 private‑sector job gains in April, up from 61,000 in March and above consensus, with hiring led by education and health services (+61,000), alongside gains in trade, transportation and utilities (+25,000) and construction (+10,000). Overall, the pattern remains consistent with a low-hire, low-fire backdrop, with pay growth holding at 4.4%. The Fed will continue to monitor upcoming datapoints (the next key data release will be the April CPI report on May 12) before delivering its next rate decision.

Markets reacted positively to the payrolls release, with equities moving higher and gains led by large-cap indices such as the S&P 500 and Nasdaq, supported by continued strength in technology. Treasury yields moved lower across the curve and the US dollar edged modestly weaker following the data. Market sentiment remained constructive, with earnings - particularly from technology and AI-linked names - continuing to underpin the rally. Oil prices were relatively contained despite ongoing geopolitical tensions. Overall, the backdrop remains consistent with a supportive risk tone, with the S&P 500 on track for an extended run of weekly gains.

Markets are taking the report constructively, as labor data reinforces that conditions remain stable, but it does little to bring policy easing, keeping the Fed on an extended hold.