Green shoots – First back-to-back monthly job gains in a year

Executive summary

U.S. payrolls added 115,000 in April, nearly double the consensus expectation for 65,000. Although the March and February tallies were revised lower (by -16,000 combined), the six-month average rose to 54,667 from 12,167.

Additionally, hours worked rose, while the unemployment rate and wages grew. Still, the economy is overly reliant on the health care industry, which accounted for practically all the job growth in the past year.

It appears that the jobs growth trend has improved, including the first back-to-back monthly gains in a year, along with the upshifts in the six-month averages for overall job growth and private payrolls. Although it won’t end the rate cut pause by the Federal Reserve (Fed), it should help dispel the misplaced notion that a rate hike is in the offing. 

Payroll trends – Federal government job losses persist

Service-providing industries hired 113,000, while goods producers added 10,000 workers. However, government payrolls dropped by 8,000 during the month, which were entirely on the federal level. In fact, the federal government has only added jobs in 3 of the past 18 months.

Conversely, private payrolls increased by 123,000, pushing the six-month average up to 68,300 from 50,000 in March. While that’s less than a third of the pre-COVID average, it still signals a cyclical upswing in the trend.

A review of the major industry trends

On an industry level, March and April seem to reflect a return to their respective trends rather than the weather-hampered February data. Still, the bulk of the job gains are concentrated within the education/health services industry group; more specifically, health services. To put it in perspective, the economy added 251,000 jobs, yet health care alone accounted for 656,500. That implies the rest of the economy lost 405,500 jobs over the past year—even excluding 311,000 federal government losses, the remainder still declined by 94,500.

Transportation & warehousing added 30,300 in April, the bulk of which were couriers and messengers. Similarly, retailers hired 21,800, which marked the fourth consecutive monthly gain. That’s the longest hiring streak for retailers since 2021. 

Leisure & hospitality hired 14,000 workers in April, although hotels cut 15,000 jobs, while restaurants and bars added 17,200 and arts, entertainment, and recreation hired 12,100 workers.

Conversely, the largest job losses in April were within information and financial services, which shed 13,000 and 11,000, respectively.  

Jobless rate and wages steady, hours worked increased 

The unemployment rate was unchanged at 4.3% for the second month. It remains above the pre-pandemic 3-year average of 4.0%, although it remains low compared to the historical average of 5.7% since 1948.

However, the broader underemployment rate (U-6) rose by 0.2 to 8.2% in April. That’s above the pre-pandemic 3-year average of 7.8%, but it has declined sharply over the past six months, from 8.7% in November.

Average weekly hours worked rose by 0.1 to 34.3, which is a tick below the pre-pandemic average of 34.4. Within manufacturing, hours worked also rose by 0.1 to 40.4, while overtime hours were unchanged at 3.0, where it’s been for the better part of three years.

Average hourly earnings rose by 0.2% month over month, slightly below the pre-COVID three-year average of 0.26%. Wages for all workers grew 3.6% from a year ago, which remains above the pre-pandemic average of 3.0%.

Wages for rank & file workers—officially known as production & nonsupervisory employees—rose 0.3% during the month, lifting the annual pace to 3.7%, well above the pre‑pandemic 3.0% average. 

Our take

We’re encouraged that job growth has strengthened, marking the first back‑to‑back monthly gains in a year, alongside rising six‑month averages for both total and private payrolls.

In our view, it appears that two of the four catalysts we anticipated coming into the year – significantly larger tax refunds and contained tariffs – are helping offset the spike in energy prices for consumers. Furthermore, business spending – the third catalyst – is being boosted by AI and technology investments and is once again additive to growth. That said, to paraphrase an old adage, we see AI everywhere except for the jobs numbers, which includes the recently released productivity figures.

We’re still awaiting the fourth catalyst—Fed rate cuts—but remain hopeful the Fed will have the opportunity to act later this year. More importantly, we’d expect that today’s solid jobs report will help dispel the misplaced notion that a rate hike is in the offing. 

Alas, we remain concerned about the Iran situation, which is a huge wildcard, particularly on the inflation front. Prior to the Middle East conflict, the direction of inflation had shifted and was clearly no longer grinding lower. The spike in crude oil has quickly flowed through to gasoline and diesel prices, which the national averages are now above $4.50 and $5.50 a gallon, respectively. That's going to gouge other consumer spending.

Bottom Line

Job growth appears to have strengthened in March and April. Three of the four expected catalysts—larger tax refunds, contained tariffs, and stronger AI‑driven business spending—are offsetting higher energy prices, though the labor and productivity data have yet to reflect the AI boost. We still await Fed rate cuts but expect today’s solid report to push back on rate hike concerns, even as the Iran-driven oil spike remains a key inflation risk that could weigh on consumer spending.