Jobs Report Turns Heads on Wall Street But I'm Second Guessing

Is it possible?

After February's disappointing performance, according to the Bureau of Labor Statistics, the U.S. economy has turned in back-to-back months of sharply accelerating job creation. Or should I say, according to the BLS Establishment Survey, as the BLS Household Survey is clearly measuring something far different. As is often the case, the twin BLS monthly labor market surveys are in sharp disagreement over just how healthy demand for labor is in this country.

Looking over the Establishment Survey, we see that job creation in the form of non-farm payrolls printed at +115,000 positions, well above the 62,000 that had been the consensus view and well above many respected Wall Street economists that were far lower than that. This was partially offset by downward regions to the past two months that showed a net loss of 16,000 jobs (-23,000 for February, +7,000 for March).

That seems great as the now -156,000 for February had been more than overcome by the addition of 300,000 new positions since. That is until we look at the Household Survey. That particular survey shows a national loss of 226,000 unemployed persons for April. This was a fourth consecutive month of net job losses for this survey, which is not what we see above.

According to the Household Survey, 92,000 individuals left the civilian labor force and the number of individuals not in the labor force increased by 188,000. That's how the unemployment rate remained where it was at 4.3% despite an increase of 134,000 unemployed persons. Not looking like such a hot jobs report anymore, is it?

Key Data

The U-3 Unemployment Rate, which is also drawn from the Household Survey, moved higher in April from 8.0% in March and 7.9% in February to 8.2%. It gets worse. The Participation Rate dropped from 61.9% to 61.8% and now stands at its lowest level since September of 2021. The Employment to Population Ratio similarly dropped from 59.2% to 59.1%.

The number of individuals working part-time for economic reasons increased by 445,000 persons in April while the number of individuals working part-time for non-economic reasons decreased by 61,000 persons. That's 384,000 more part-time workers despite (from the same survey) a net job loss of 226,000 positions.

This implies a decrease in full-time employment of as many as 610,000 positions, which is really a kick in the pants. On the bright side, the average workweek for full-timers, which is also a measure of labor market demand, ticked back up to 34.3 hours from 34.2. Wage growth for those employed did improve from 3.5% on a year over year basis in March to 3.6% in April but did fall short of the 3.8% consensus view.

Demographics

The unemployment rate along gender, ethnic background and education from March to April:

Adult Men increased from 3.8% to 4.0%
Adult Women decreased from 4.0% to 3.9%
Teenagers increased from 13.7% to 14.4%
White increased from 3.6% to 3.7%
Black or African American increased from 7.1% to 7.3%
Asian decreased from 3.7% to 3.3%
Hispanic or Latino increased from 4.8% to 5.0%
High School Dropouts increased from 5.9% to 6.4%
High School Graduates stayed put at 4.7%
Some College/Associate Degrees decreased from 3.6% to 3.2%
Bachelor's Degrees and more stayed put at 2.8%

Markets and Policy

I am having a hard time celebrating just how strong this report is along with the rest of Wall Street. It's not at all difficult to find plenty of data in these results that does not tell a cheery tale. For the economy. As far as demand for labor putting upward pressure on consumer prices, I don't think I see anything here that would do that. There is an oppressive inflationary impact on U.S. households being felt right now due to the supply shock created by the war in the Middle East. In my opinion, that is a temporary condition.

With labor markets quite possibly still digging a four-month hole depending on which survey once trusts, I don't think that the central bank, if there is even a shred of credibility left at that beleaguered institution, could even consider a rate hike this year or even maintain short-term interest rates where they are. That said, there will soon be a new sheriff in town at the Federal Reserve as Kevin Warsh replaces Jerome Powell as chair. Powell will not be leaving, but out of power, at least the political influence (whose influence is debatable, depending on one's own views) over the central bank and the implementation of monetary policy should finally abate.

According to futures markets trading in Chicago, there is no net rate cut or increase priced in right through the end of 2027. By the end of 2026 there is now a 12% probability priced in for any rate cut at all and a 16% probability priced in for any rate hike at all. With the eventual end of the war with Iran and the new Fed chair taking over, I would not put much stock in what these futures are doing until the land under foot feels firmer and we can actually get a better feel for the environment.

At the time of publication, Guilfoyle had no positions in any securities mentioned.