The Labor Department reported that the U.S. economy added 428,000 jobs in April which was better than expectations of 400,000. Immediately after the report, stocks went positive after being in the red for most of the after-hours session.
However, these gains were quickly erased, and stocks moved lower and were down more than 1.5% across the board as of 10 AM and look to be on the verge of making new 2022 lows. The report should certainly dismiss concerns that the economy is already in a recession.
There is some hope that it shows a deceleration is in the works in terms of the labor market which could be a positive indication that inflation has already peaked. Of course, one challenge for policymakers is to unwind how much of the gains are due to inflation vs reopening.
Some reasons this could be the case is that wage growth slowed to 0.3% on a monthly basis with some negative revisions to previous months. Anecdotally, there are some reports of layoffs in the tech sector, companies are ending or curbing their aggressive expansion plans with the latest example being Amazon
The unemployment rate did unexpectedly increase to 3.6% and above estimates of 3.5%. U6 unemployment, which includes underemployed workers, also rose for the first time in a couple of years to 7%. The labor force participation rate also fell for the first time in more than a year to 62.2%. This is a key measure to watch as the economy remains short of 5.6 million workers.
The strongest part of the economy was, once again, leisure and hospitality which added 78,000 jobs, and the unemployment rate for the sector reached 4.8%. Manufacturing was also strong after a soft start to 2022 with 55,000 jobs added.
Overall, the report contained very few surprises, although there is some potential insight with a deeper look at an inflation picture that may be improving at the margins. However, the market's major focus remains on the Fed rate hikes and the possibility that it could worsen an already slowing recession.
