As We Cheer a Jobs Report Home Run Beware of Some Curve Balls

We have another home run of a jobs report. Is it possible that non-farm payrolls have hit more back-to-back home runs this year than the Mets and Red Sox have? Last month’s jobs report seemed incredibly high at 178,000. It was revised higher!

This month’s headline number came in at 115,000, but importantly, private payrolls (not government) came in at 123,000. With many economists arguing that around 50,000 is sufficient to maintain the unemployment rate, this is a stellar report.

Hours worked ticked higher, which is also a good result. I liked that the "JOLT hire" rate jumped from 3.1 to 3.5, which is the highest since May 2024. This is a more difficult number to “fudge” (say relative to the number of job openings). The quit rate, however, continues to hover at 2%. It has been between 2.1% and 1.9% for over two years. I’d like to see that tick higher, which would show labor confidence.

The headline number is also in line with ADP, which showed 109,000. I like the consistency across a variety of reports.

There is little wage pressure, as annual hourly earnings were revised down last month and missed this month. While that indicates less “wage pressure inflation” risk, it is concerning, given the litany of CEOs who have discussed how stressed some portion (seemingly a large portion) of the consumer base is. Even “Truflation,” which many point to for good reason, has moved back to 2%. Truflation, which is a more frequently updated inflation index, is a useful additional reference point. Even with these job numbers, I’m concerned about affordability and the pressure on the economy coming from people at many income levels, especially those barely scraping by from paycheck to paycheck.

If only we could end the report right here, but there's more:

* The unemployment rate remained unchanged, which seems like a good thing. But it could also be viewed as a bit disappointing, given the size of the establishment/headline number.

* The household survey lost 226,000 jobs (after losing 64,000 in March). There are always disconnects between the household survey and the establishment survey. One is notoriously inaccurate, and the other, the household survey, is even less accurate. So we can take this side of the survey with a grain of salt, but it is worth mentioning.

* Labor force participation dropped to 61.8%. The only reason the unemployment rate remained unchanged is because people dropped out of the labor force. That to me is hardly a good sign. People having difficulty making ends meet, but not showing up in the labor force? You need to go back to 2021 to get such a low participation rate.

* The birth/death model came in at 391,000. Apparently, not all of that adjustment feeds directly into the headline number (there are adjustments), but it has an impact. Last April and this April we saw “nice” spikes in the birth/death model.

* What about the spike in new EINs? Maybe Liberation Day and war helped motivate people to start their own businesses? Maybe as people filled in their tax forms, they realized they should create an LLC for some gig economy income? Maybe, the job market isn’t quite so “hot” and people are setting up for the gig economy? I continue to argue that EIN (Employment Identification Number) applications don’t reflect “new businesses” the way they once did. They spike when people are struggling and taking on gig economy jobs, rather than truly starting new businesses.

Bottom Line

While the initial reaction is that the job market hit it out of the park, again, that isn’t the whole story.

There are enough things that could concern the Fed (household report, income, participation rate and maybe even the birth/death model) that few members are likely to shift their outlook materially.

This report should not help bonds much (the potential for an Iran deal, is doing the heavy lifting on that front), but it isn’t as scary for bond (and rate cut) bulls, to back off much.

At the time of publication, Tchir had no position in any security mentioned.