Decent jobs report – The Daily Tearsheet

Vital Statistics:

Stocks are higher this morning after a stronger-than-expected jobs report. Bonds and MBS are down.

The economy added 177,000 jobs in April, according to the Bureau of Labor Statistics. This was a decrease from the downwardly-revised March number of 185,000, however it was well above the Street consensus of a 130k gain. The unemployment rate was unchanged at 4.2%.

Average hourly earnings rose 0.2% MOM and 3.8% YOY, which was below consensus of 0.3% MOM and 3.8% YOY. The average workweek was unchanged.

If the tariff announcements in April affected employment, it has yet to show up in the official numbers. Overall it was a pretty good report, and much better than feared. The downside is that it pushed bond yields up about 4 basis points.

The ISM Manufacturing Report showed the manufacturing sector was still in contraction in April, driven by uncertainty over tariffs. “Demand and production retreated and destaffing continued, as panelists’ companies responded to an unknown economic environment. Prices growth accelerated slightly due to tariffs, causing new order placement backlogs, supplier delivery slowdowns and manufacturing inventory growth. Forty-one percent of manufacturing gross domestic product (GDP) contracted in April, down from 46 percent in March. The share of manufacturing sector GDP registering a composite PMI^® calculation at or below 45 percent (a good barometer of overall manufacturing weakness) was 18 percent in April, an 11-percentage point increase compared to the 7 percent reported in March.

Tariffs are causing all sorts of problems, especially with price quotes and who bears the risk for the final number. Shipments were largely stopped in April, which was probably the period of max disruption.

The prices paid index increased from 69.4 to 69.8, which is a worrisome sign for inflation.

Construction spending fell 0.5% MOM in March, according to the Census Bureau. Private residential construction fell 0.4% MOM.

The Fed Funds futures now are predicting an almost 0% chance of a cut next week and less than a 50% chance of a cut in June. They are still looking at a total of 4 cuts this year, although the second most likely outcome is now 3, while it was 5 earlier this week.

December futures:

The most likely outcome (4 cuts this year) would mean that the Fed would be at r-star by the end of the year (or at a point where policy is neither restrictive nor stimulative).

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