Last Friday, we got the U.S. employment report for April.
And in periods like this, this number becomes one of the most important data points in the entire market. Why? Because we have a war with Iran, inflation is still running hot, the Fed has no clear idea what to do with interest rates, and at the same time consumer confidence has fallen to historic lows.
So everyone was holding their breath waiting for a number that would show whether the economy is still holding up or starting to crack.
So here’s what happened. The U.S. economy created 115,000 new jobs in April.
Analysts were expecting only around 55,000 to 63,000. In other words, the number came in almost double expectations.
Meanwhile, the unemployment rate stayed unchanged at 4.3%, exactly where economists expected it to be.
And this is where things become even more interesting. March payrolls were revised higher to 185,000 jobs. That means we now have two consecutive months with more than 100,000 new jobs added.
This is the strongest two month stretch since 2024. After an entire year where the labor market looked almost dead, we are suddenly seeing something that resembles a recovery.
“But wait, if everything looks great, why is everyone still talking about a slowdown?”
Because there are still warning signs that the market does not like.
First, wages. Average hourly earnings increased just 0.2% month over month and 3.6% year over year, both below expectations.
Second, the labor force participation rate fell to 61.8%, the lowest level since October 2021.
And third, the “real” unemployment rate, the one that also includes underemployed workers, jumped to 8.2%.
Now let’s look at where these jobs actually came from, because not all sectors are equal.
Leading the way once again was healthcare, adding 37,000 new jobs.
Transportation and warehousing came next with 30,000.
And here’s something very interesting. Inside that category, courier and delivery companies alone added nearly 38,000 jobs, the strongest number since 2020.
Retail added 22,000 jobs. Social assistance added another 17,000.
But on the other side, there is one sector that continues digging its own grave.
The information technology sector lost another 13,000 jobs in April.
And pay attention to this. Since November 2022, the industry has lost a total of 342,000 jobs. That is roughly 11% of its workforce.
Yes, you read that correctly. ELEVEN PERCENT.
And this lines up almost perfectly with the rise of artificial intelligence.
At the same time, Meta and Microsoft continue announcing layoffs while pouring massive amounts of money into AI investments.
So what does this mean?
It means the average American worker can probably still find a job in healthcare or inside an Amazon warehouse.
But in tech? Things there are getting ugly.
Now let’s get to the hottest topic of all. What will the Fed do next?
Right now, the market has taken a very clear position.
The probability that interest rates remain unchanged at 3.50% to 3.75% during the June meeting is currently around 93.8%.
For December, the probability rises to 70.4%.
In simple terms, the market believes the Fed will keep rates unchanged for the rest of the year.
But inside the Fed itself, things are becoming chaotic.
At the latest meeting, the vote was 8 to 4 in favor of holding rates steady.
That may sound normal, but it is not.
It was the biggest disagreement inside the Fed since 1992. We are talking about a 34 year high in internal division.
And what makes it even more fascinating is that the dissenters did not even agree with each other. Some argued the next move should be a rate hike, while others wanted cuts.
“So if the labor market is holding up, why would the Fed change anything?”
Because there is another problem the Fed cares about even more: inflation.
Inflation has remained above the Fed’s 2% target for five straight years.
And this is where the war with Iran enters the picture.
The conflict has pushed gasoline prices sharply higher and created a situation where inflation could climb toward 4% while wages are rising only 3.6%.
That means real wages are moving into negative territory.
As one analyst put it, Americans may still have jobs, but they increasingly feel financially squeezed.
Consumer confidence has now fallen to a new historic low.
Now let’s talk about what could happen over the next few months.
On one side, tax cuts are still supporting consumer spending and business investment.
But on the other side, higher gasoline prices and the ongoing war could force businesses to become more cautious.
As one analyst explained, companies operate with fixed budgets. When a larger share of that budget suddenly goes toward oil and oil dependent materials, there is less money left for hiring and wage increases.
And the industries most exposed to this risk are airlines, transportation, and manufacturing.
At the same time, there are still some encouraging signs.
Jobless claims remain relatively low.
Layoff announcements are still below last year’s levels.
And the ADP report showed 109,000 new private sector jobs in April, the strongest reading in more than a year.
So what’s the bottom line?
We are looking at a labor market that is, as the Chicago Fed president described it, “stable but not strong.”
It is not collapsing, but it is not exactly booming either.
And the next Fed Chair, Kevin Warsh, who is still awaiting Senate confirmation, could inherit one of the most complicated economic environments in years.
