The US labor market cooled notably last month as both hiring and wage growth slowed more than economists had expected in April.
The US economy added 175,000 new jobs and the unemployment rate rose to 3.9% last month, new data from the Bureau of Labor Statistics showed Friday. Wall Street economists had expected nonfarm payrolls to rise by 240,000 and the unemployment rate to remain at 3.8%, according to Bloomberg data.
Wages also rose less than forecast, with average hourly earnings rising 0.2% over last month and 3.9% over the last year. Economists had expected to see a monthly jump of 0.3% in April and a 4% rise over last year.
Friday's report also showed February's job growth was revised down — to a gain of 236,000 nonfarm payroll jobs from the 270,000 previously reported — while March's report was revised up to job gains of 315,000 from the 303,000 initially reported.
Ahead of Friday's report, economists flagged revisions as important to watch, as the last year has seen the average month's payroll gains revised down by 13,000 jobs.
The length of the average workweek fell last month, to 34.3 from 34.4. The underemployment rate, which includes the unemployed and those marginally attached to the workforce, rose to 7.4%.
Stocks rallied on Friday following this report, with investors taking this labor market slowdown as evidence in favor of the Federal Reserve lowering interest rates at some point this year.
Data from the CME Group on Friday showed putting the odds of a rate cut at the Fed's September meeting at roughly 2-to-1; by December, investors now see a less than 10% chance the Fed has interest rates in its current range of 5.25%-5.50%, down from a 20% chance a week ago.
By industry, the narrow gains in the labor market seen this year continued, with healthcare and social assistance employment increasing by a combined 87,000 in April, accounting for almost exactly half of the overall growth in nonfarm employment.
Retail, along with transportation and warehousing were the only two industries outside of healthcare and social assistance that saw payroll growth north of 20,000 last month.
"We suspect the near-record warm winter explains some of the strength over the preceding four months," Paul Ashworth, an economist at Capital Economics, wrote in an email on Friday, "and April’s renewed slowdown bears that out a little — with construction employment up by only 8,000 and leisure & hospitality rising by a trivial 5,000."
The slowdown in wage growth seen last month also helps the case for the Fed to lower interest rates at some point this year, even as inflation data has remained higher than the central bank's 2% target and shown "bumpy" progress toward that level in recent months.
Bill Adams, chief economist at Comerica Bank, called this piece of Friday's jobs report the "most important" part of the interest rate outlook.
"The more normal job market is dampening price pressures," Adams added, "and will reassure the Fed that the economy is still moving two steps forward, one step back toward lower inflation."
Read more: What the Fed rate decision means for bank accounts, CDs, loans, and credit cards
Earlier this week, data from the BLS suggested wage pressures building after the Employment Cost Index (ECI) accelerated in the first quarter of 2024 to reach its highest level in a year.
In a press conference on Wednesday, Fed Chair Jerome Powell downplayed the idea that wage pressures today are creating a meaningful inflationary impulse, noting "essentially all wage measures have come down substantially" from peaks reached after the pandemic.
Average hourly earnings, for instance, grew more than 5% annually during each month between September 2021 and December 2022.
April's figure marked the slowest pace of wage growth since June 2021.
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