The latest US jobs report for April has painted a picture of a cooling labor market, with both hiring and wage growth slowing more than economists anticipated.
According to data released by the Bureau of Labor Statistics on Friday, the US economy added 175,000 new jobs in April, falling short of Wall Street economists' expectations of a 240,000 increase.
Moreover, the unemployment rate unexpectedly rose to 3.9%, contrary to the anticipated 3.8% rate.
Wage growth also failed to meet expectations, with average hourly earnings increasing by only 0.2% compared to the anticipated 0.3% jump. On an annual basis, wage growth retreated to 3.9% from the previous year, below economists' forecast of 4%.
The latest US payrolls report has opened the door to a potential rate cut in September, following disappointing figures for April.
“There is now a 50% chance of a rate hike in September, up from 31% in April,” Kathleen Brooks at XTB Group noted.
“Earlier this week there was only one rate cut priced in from the Fed for 2024, as we end the week, there are now nearly two cuts priced in.”
Neil Wilson, chief market analyst at Finalto, believes the report supports the Fed narrative that rate cuts are ahead, which chair Jerome Powell indicated in his comments following the FOMC meeting earlier this week.
“Still healthy jobs growth but wages were down so people are talking about goldilocks…not too hot and not too cold,” Wilson said.
Brooks flagged a slowdown in government hiring and flat employment in key sectors like construction and technology, suggesting potential challenges ahead. She also noted the impact of a weakening oil price on job growth in the energy sector.
But overall the read was more positive than in recent months, analysts agreed.
“Investors seem a lot less fearful of a downshift and stagflation,” Finalto’s Wilson noted.
And risk sentiment was boosted this week thanks to a less hawkish Fed and Friday’s payrolls data that is “moving in the direction needed for interest rate cuts in the US,” XTB’s Brooks said.
“The combination of payrolls and the Fed have helped to increase rate cut expectations for 2024, with no chance of a rate hike for this year expected,” Brooks added.
“What a difference a week makes.”