UBS Economics-US Economic Data _Solid Employment Report_ Pingle-115131861

ab2 May 2025Global ResearchUS Economic DataSolid Employment ReportSolid employment report lowers the odds of rate cuts anytime soonNonfarm payroll employment expanded 177K in April, with private employment rising 167K and government 10K, better than we expected (135K) and consensus (138K). Preceding months were revised down -58K, taking some of the sheen off the report, and the March gain was reduced by 43K, to a downwardly revised 185K, and we were left with less evidence of weather pull forward from March at the expense of April than we thought. As we noted in the preview that was what we thought would drive the two month contour. In the event, even on a non-seasonally adjusted basis, the employment gain was a little better than we thought. Note that we would expect today's gain to revise down in the next two releases, which has happened with uncanny regularity in the past two decades.Despite today's news, we still think the FOMC faces a troublesome growth and inflation trade-off to come but we did not expect that to be apparent in the April employment data. We also expect the labor market data looks fine in the May employment report too, released in a month. For the time being, however, today's report puts the possibility of a June rate cut further out of reach. Looking at the industry distribution, most were in line with our expectations, but government was a little stronger at +10K than the +5K that we expected, and there was surprising strength in transportation and warehousing employment which expanded 29K in April. The diffusion index was little changed at 54.6 which is good, but not great.The work week was revised up in March to 34.4 hours and held steady in April, which, as a sign of labor demand, is better than it looked before.The unemployment rate was little changed in April, edging up to 4.19% from 4.15%, when we thought it might edge down, though our Q2 projection is for the rate to average 4.2%. Average hourly earnings rose 0.2% in April, with the year over year change at 3.8%, in line with our expectations and a touch below consensus. By comparison private wages and salaries in the Employment Cost Index data rose 3.4% over the 12 months ending in March.Establishment survey details: decent technical supportThe residual net birth death adjustment (a model based imputation) added 393K jobs to the NSA change in April, 9K more than the adjustment added last April, and a touch more than we expected. That would be equivalent to spotting the April change roughly 130K additional jobs on a seasonally adjusted basis. Over time the model has added more and more jobs in April. This upward trend was present pre-pandemic and accelerated in recent years. Unlike January and February where the adjustment added fewer jobs than the same month in the prior year, April bucked this trend and the adjustment added 9K more jobs than in April 2024. We noted that this posed an upside risk going into today's report and that risk materialized to an extent