April Non-Farm Payrolls Beat Estimates as Job Growth Hits 115k; Unemployment Holds Steady at 4.3% Suggesting Fed Pause Extension

TradingKey - On May 8, ET, April non-farm payroll data showed that 115,000 jobs were added during the month, which, although a significant slowdown from the 178,000 growth in March, outperformed market expectations of 65,000. The unemployment rate remained at 4.3%. Additionally, the combined non-farm payroll additions for February and March were revised down by 16,000. The report indicates that the U.S. labor market is gradually stabilizing after near-zero growth last year.

Previously, Wall Street institutions believed that amid persistently high inflation and the uncertain outlook of the U.S.-Iran conflict, a rate cut by the Federal Reserve this year would likely be impossible regardless of employment data; interest rate swap markets have currently priced the probability of a rate cut this year down to zero.

Goldman Sachs pointed out that for the Federal Reserve to initiate rate cuts, it may need to see conditions such as the unemployment rate rising to 4.5% or significantly negative job growth; a single monthly report below expectations is unlikely to accelerate the Fed's pace of rate cuts.

April's non-farm payroll data was significantly better than expected, and the fundamental state of "low hiring and low layoffs" in the U.S. labor market remains unchanged. This data substantially reduces the likelihood of the Federal Reserve pivoting to rate cuts due to a labor market recession, providing the Fed with greater policy space and a longer time window.

Fed Chair Jerome Powell stated last week that the labor market has shown "increasing signs of stability," but the U.S.-Iran war will be a key factor going forward, and it remains to be seen whether the war will begin to drag down hiring activities. The Fed may shift its focus to the inflation risks brought by the U.S.-Iran war.

However, attention should also be paid to the impact of the downward revisions to the new job numbers for February and March: the March non-farm payrolls were revised from an increase of 178,000 to 185,000, and February's figures were revised from a decrease of 133,000 to a decrease of 156,000. This implies that the labor market situation in the previous two months was not as robust.

Following the data release, U.S. stock index futures maintained their gains, Treasury yields continued to move lower, and the U.S. dollar weakened.