The last call on the business cycle is always a difficult proposition, especially when looking at data on the labor market and wages, which tends to lag other areas.
The April jobs report provided fresh evidence that the economic expansion continued as 177,000 jobs were created.
The U.S. jobs report for April provided fresh evidence that the economic expansion continued as 177,000 jobs were created, and the unemployment rate remained at 4.2%. Wage growth slowed to 0.2% on the month and 3.8% from a year ago.
While job growth slowed from a downwardly revised March estimate of 185,000, it is encouraging that 515,000 individuals entered the labor market looking for work and total hiring arrived well above the 100,000 necessary to keep employment conditions stable.
Employment of people in the prime working years of 25 to 54 stood at 59.5% for men and 77.7% for women. The three-month average increase for that group stood at 155,000. These measures will be important benchmarks as new trade policies begin to hit the economy.
Given rising prices that loom as trade taxes take effect, such job and wage growth will be necessary if consumers are to absorb an increasing cost of necessities.
But because we know there is a trade and pricing shock on the way, interpreting the April employment data as indicative of what will happen over the remainder of the year is dicey at best.
Rather, the April jobs report might be better compared to the last call on Saturday night in Manhattan.
There is still time left in the business cycle. But the window is rapidly closing.
Policy implications
The April jobs report was a status quo event as far as the Federal Reserve is concerned. It does not support any notion of a rate cut at the May 7 meeting nor does it warrant the Fed and its speakers hinting at such an outcome.
Rather, the Fed should put forward policy guidance that strongly suggests a policy path that is tilted toward ensuring price stability as a pre-condition of maximum stable employment as the adverse impact of tariffs on inflation begins to lap up on the shores of the economy.
The data
The composition of hiring was solid as total private employment increased by 167,000. Both goods-producing and construction jobs advanced by 11,000 each. As expected, private education and health care sectors added a total of 70,000 jobs, with leisure and hospitality sectors adding 24,000.
Inside the report, the only weak areas were manufacturing, where 1,000 jobs were lost. Retail trade lost 2,000 positions and federal government jobs declined by 9,000.
Trade and transport, which will not look good in the coming months, advanced by 32,000 jobs while the financial industry added 14,000, professional and business services 17,000, and state and local added 19,000.
Temporary hiring added 4,000 workers in April. Given the decline in shipping volume that will soon show up in the hard data, one should anticipate a decline in logistics, transportation and warehousing employment in the May, June and July employment reports.
Total private hours and manufacturing hours worked, which merit close attention over the remainder of the year, were stable and did not change on the month with the former residing at 34.3 and the latter at 40.
Read more of RSM’s insights on the economy and the middle market.
Overtime in the manufacturing sector declined by 0.5% while overall aggregate hours worked increased modestly on the month.
With 45% of imports being inputs into final U.S. domestic production, watch overtime as well as manufacturing hours worked as a leading indicator of trade- and tariff-related stress.
The median duration of unemployment increased to 10.4 weeks while the participation rate increased to 62.6% and the employment to population ratio advanced to 60%.
The takeaway
The labor market expanded at a solid pace in April, which should be taken as a positive given the price shock that will soon begin showing up.
Trade volumes, which include incoming shipping into the ports of Los Angeles and Long Beach, are about to decline by roughly 35% with the cost of accepting that merchandise roughly doubling starting the week of May 4.
The goods that do arrive will be subject to a variety of trade taxes that scale up as high as 145%.
In our estimation, the April jobs report best represents the last call on the current economic expansion.
While there is still time to get things done, the window is narrowing on the current cycle and we expect to observe a pronounced slowing of growth, investment and hiring in the near term.
