The US labour market has shown further signs of cooling, with non-farm payrolls growing by 138,000 in April, below the consensus estimate of 175,000. This is the second consecutive month that payrolls have risen by less than 150,000, according to the Bureau of Labor Statistics. The unemployment rate also ticked up to 4.2% from 4.1%, marking the highest reading since late 2021.
The slowdown in job growth was concentrated in certain sectors, particularly temporary help services and retail trade. These categories have historically been leading indicators of labour-cycle inflection points, and their weakness suggests that the labour market may be losing momentum. In contrast, healthcare and government continued to add headcount at a strong pace, with these sectors remaining a source of stability in the labour market.
Average hourly earnings rose by 3.6% year-on-year, a continued moderation from the cycle peak of more than 5% in 2022. This slowdown in wage growth is consistent with a labour market that is cooling, but still remains relatively strong. The combination of moderating wage growth and slowing job growth suggests that the labour market is moving towards a state of balance, rather than experiencing a sharp downturn.
Additional data from the Job Openings and Labor Turnover Survey (JOLTS) also points to a slowing labour market. The quits and hiring rates have continued to drift lower, indicating that workers are becoming less confident in their ability to switch jobs and that employers are becoming less aggressive in their hiring efforts. This is consistent with a labour market that is cooling, but still remains relatively strong.
The implications of this labour market report for the Federal Reserve are significant. The print is consistent with a labour market that has cooled into balance without breaking, which is the precise outcome that the Federal Reserve has been targeting since 2022. This strengthens the case for a measured easing cycle to begin in September, as the Fed seeks to balance the need to control inflation with the need to support economic growth. A easing cycle would likely involve a reduction in interest rates, which would help to stimulate economic growth and support the labour market.
The Fed's decision to begin an easing cycle will depend on a range of factors, including the state of the labour market, inflation, and economic growth. However, the latest labour market report suggests that the Fed is making progress towards its goal of a balanced labour market. The fact that the labour market is cooling, but still remains relatively strong, suggests that the Fed may be able to achieve a "soft landing" for the economy, where inflation is brought under control without causing a recession.
The labour market report also has implications for investors and allocators. A cooling labour market and slowing economic growth may lead to a reduction in interest rates, which would make bonds more attractive to investors. Additionally, a slowing labour market may lead to a reduction in consumer spending, which could have a negative impact on stocks. However, the fact that the labour market is still relatively strong suggests that the economy is not yet in recession, and that investors may still be able to find opportunities for growth.
In terms of sector-specific implications, the slowdown in temporary help services and retail trade may have a negative impact on companies that are heavily exposed to these sectors. On the other hand, the continued strength in healthcare and government may provide a boost to companies that operate in these sectors. Investors and allocators will need to carefully consider these sector-specific implications when making investment decisions.
Overall, the latest labour market report suggests that the US labour market is cooling, but still remains relatively strong. The implications of this report are significant, both for the Federal Reserve and for investors and allocators. As the labour market continues to evolve, it will be important to closely monitor the data and adjust investment strategies accordingly. The Fed's decision to begin an easing cycle will be a key factor to watch, as it will have a significant impact on interest rates and the overall direction of the economy.
The **current state of the labour market** is one of balance, rather than excess or weakness. This balance is reflected in the fact that the unemployment rate is still relatively low, at 4.2%, and that average hourly earnings are still growing, albeit at a slower pace. The fact that the labour market is cooling, but still remains relatively strong, suggests that the economy is not yet in recession, and that investors may still be able to find opportunities for growth. However, the slowdown in job growth and the moderation in wage growth do suggest that the labour market is losing momentum, and that investors and allocators will need to be cautious in their investment decisions.