NFP reactions: Jobs report breathes new life into rate cut calls

The latest non-farm payroll (NFP) data has dropped, and analysts have been quick to provide their thoughts on its meaning for the US economy. This key jobs report can signal economic health and future Federal Reserve policy decisions, so market reactions are often swift and varied.

NFP numbers breakdown

The latest data revealed the U.S. economy added fewer jobs than anticipated in April. 

The report showed that nonfarm payrolls were 175,000 last month, lower than the upwardly revised total of 315,000 in March. The number was also below the 238,000 forecast and 243,000 consensus estimate.

Meanwhile, the unemployment rate came in at 3.9% in April, rising slightly from the 3.8% reported in the prior month. The figure was forecast to equal March's pace. 

Growth in average hourly wages was 0.2% month-on-month, slowing from 0.3% in March.

What analysts are saying about today’s jobs report

Following the report, analysts at Wells Fargo said a 175,000 increase in nonfarm payrolls and a 3.9% unemployment rate is “hardly cause for panic.” 

“Furthermore, the FOMC will want to see if the pending inflation data also show signs of a slowdown relative to Q1,” stated the bank. 

“We think it is unlikely the FOMC will be ready to start cutting rates by its next meeting in June, but our base case for the first rate cut to occur at the September 18 FOMC meeting remains firmly in play based on today's employment data. The next few months of inflation data will be critical to that forecast.”

Meanwhile, ING said that with US Federal Reserve Chair Jerome Powell leaning dovish at Wednesday's press conference, “this has breathed new life into Federal Reserve interest rate cut calls.”

Analysts at Evercore ISI noted that the report is consistent with signals from JOLTS and second-tier labor data, though not first-quarter ECI wages.

Nevertheless, they believe it “alleviates concern the labor market could be tightening up again and suggests that it instead continues to ease.” 

“This provides confidence that Fed policy is sufficiently restrictive to moderate demand relative to strong supply. If the labor market continues to ease, it is unlikely the economy will overheat on a sustained basis,” said Evercore analysts. 

“This suggests that recent elevated inflation prints ought to give way in the months ahead to renewed progress on inflation, allowing the Fed to lift its pause on rate cuts.”

Furthermore, the firm argues that the weakness in the labor market is not close to severe enough to push the Fed to cut on bad news grounds. However, they feel a softer labor market does affect the balance of risks and edges the bar the inflation data needs to hit slightly lower. 

Overall, Evercore feels “somewhat more confident” in its base case that the Fed will start cutting by September with two cuts this year. However, they acknowledge that a lot needs to go right quickly on inflation to cut in July.