The April jobs report was something of a disappointment and only complicates the market’s best guess as to what the Federal Reserve rate-setting committee will do next, but it was a hardly a disaster.
In fact, in some ways, this employment report doesn’t matter at all.
On the face of it, sure, this was a somewhat troubling employment report. The economy created the fewest number of new jobs in seven months to miss estimates by a wide margin. Indeed, non-farm payrolls expanded by 160,000 when economists were looking for 200,000 new positions.
Making matters worse, the February and March tallies were revised lower, slashing 19,000 jobs from previous reports. And labor market participation — which was already weak — declined for the first time in six months to 62.8% from 63%.
But the monthly jobs numbers — often billed as the mother of all economic data releases — aren’t really as big a deal as we make them sound. At least not in isolation and in real time. Here’s why:
- One Month Is Not a Trend: As with all important readings on the health of the economy, the jobs report is noisy and the data are subject to revision — repeated revision. One month of data doesn’t tell economists or the Fed much at all. It’s the trend that matters, not one data point, and so far the trend of sustained job growth remains on track.
- The Numbers Aren’t So Bad: The labor market cooled off in April, but it hardly collapsed. The unemployment rate remained steady at 5%, which is essentially full employment. In other positive news, average hourly earnings grew 0.3% and the average work week rose to 34.5 hours. That puts more purchasing power in workers’ hands.
- A Rate Hike Wasn’t in the Balance: Neither the Federal Reserve nor the market can be surprised that the second quarter has so far been one of sluggish corporate profit and economic growth. The odds of a Fed rate hike this year were dwindling by the day ahead of the jobs report anyway. Perhaps this only confirms that the economy hit yet another one of its early-in-the-year soft patches. Only time will tell.
Some deceleration in the labor market is not the same thing as weakness, and although it’s too soon to know what the implications are for Fed policy, it’s not like investors were confident in another rate hike coming anytime soon anyway.
As much as the labor market was showing sign of improvement, it’s not like output and price growth are making a pound-the-table-case for higher rates.
The bottom line is that one data point doesn’t make a trend. If we get another month or two of disappointing jobs growth and downward revisions, well, then the Fed has a problem.
But we’re not there yet.