Summary: US non-farm payrolls up 175,000 in April, below expectations; previous two months’ figures revised down by 22,000; Westpac: US labour market cooling; jobless rate ticks up to 3.9%, participation rate steady at 62.7%; US Treasury yields down; expectations of Fed rate cuts firm; employed-to-population ratio falls to 60.2%; underutilisation rate ticks up to 7.4%; annual hourly pay growth slows to 3.9%.
The US economy ceased producing jobs in net terms as infection controls began to be implemented in March 2020. The unemployment rate had been around 3.5% but that changed as job losses began to surge through March and April of 2020. The May 2020 non-farm employment report represented a turning point and subsequent months provided substantial employment gains which continued through into 2021, 2022 and 2023.
According to the US Bureau of Labor Statistics, the US economy created an additional 175,000 jobs in the non-farm sector in April. The increase was noticeably less than the 250,000 rise which had been generally expected and the 315,000 jobs which had been added in March. Employment figures for March and February were revised down by a total of 22,000.
“The non-farm payrolls report showed that hiring slowed in April, while a surprise up-tick in the unemployment rate and a welcomed slowdown in hourly earnings supported the view that the labour market is cooling,” said Westpac economist Jameson Coombs.
The total number of unemployed increased by 63,000 to 6.492 million while the total number of people who were either employed or looking for work increased by 88,000 to 167.983 million. These changes led to the US unemployment rate ticking up from March’s figure of 3.8% to 3.9%. The participation rate remained steady at 62.7%.
US Treasury bond yields fell almost uniformly across the curve on the day. By the close of business, the 2-year yield had lost 6bps to 4.82%, the 10-year yield had shed 7bps to 4.51% while the 30-year yield finished 6bps lower at 4.67%.
In terms of US Fed policy, expectations of a lower federal funds rate in the next 12 months firmed, with several cuts currently factored in. At the close of business, contracts implied the effective federal funds rate would average 5.30% in July, 3bps lower than the current spot rate, 5.18% in September and 5.03% in November. However, May 2025 contracts implied 4.53%, 80bps less than the current rate.
One figure which is indicative of the “spare capacity” of the US employment market is the employment-to-population ratio. This ratio is simply the number of people in work divided by the total US population. It hit a cyclical-low of 58.2 in October 2010 before slowly recovering to just above 61% in late-2019. April’s reading slipped back from 60.3% to 60.2%, some way from the April 2000 peak reading of 64.7%.
Apart from the unemployment rate, another measure of tightness in the labour market is the underutilisation rate and the latest reading of it registered 7.4%, up from 7.3% in March. Wage inflation and the underutilisation rate usually have an inverse relationship; private hourly pay growth in the year to April slowed from 4.1% to 3.9%.
