After a US inflation and Fed heavy two weeks, markets look to data on the labour market and the release of the non-farm payrolls report on the first Friday of the month. Most Wall Street economists believe we are in for muted figures with the jobless rate steady. We don’t actually need a big headline number to keep the unemployment rate in check, in the current low labour supply growth environment. That points to monthly payroll changes being more volatile than before, while policymakers at the recent FOMC meeting were more concerned about the inflation outlook and the price stability side of their dual mandate. But there’s no doubt NFP does always have the capacity to surprise and jolt markets, and a negative headline number has been talked about.
As we have written previously, the biggest wildcard to forecasts is the Middle East conflict and when the shock will impact upon hiring activity. The best comparison in terms of a sudden large war-driven spike in oil prices of this size was in 1990–91, when payrolls fell almost immediately and like today, had been weakening for some time. With this conflict starting at the end of February and between nonfarm reference period, that potentially also points to a more negative impact upon hiring sentiment in this report.
Consensus expectations
The headline forecast for non-farm payrolls is for another solid gain in jobs of 65,000. This comes after the big March headline gain of 178,000, though this was somewhat flattered by a boost from returning healthcare strikers which had dragged on February’s report. Across the two months, underlying job creation was running around 20-30k, with the 3-month average now at 68k and the average from January 2025 at 20k. The jobless rate is forecast to stay unchanged at 4.3% and wage growth is predicted one-tenth higher at 0.3% m/m, and 3.8% y/y.
The long-term average of 20k is noteworthy – if the US is unable to meaningfully add jobs when the economy was growing robustly and sentiment was solid, it figures it will be harder to add jobs in the current environment amid the Middle East conflict. Job growth has also been concentrated in just three sectors which have accounted for over 90% of all jobs created over the past few years; strip these out and headline prints would be negative. Indeed, these sectors are not high growth areas of the economy, as the jobs are often low paid, less secure and temporary.
Employment indicators and other factors
Other job market gauges have been mixed with the ISM employment indices pointing to contraction while job lay-off announcements remain elevated and consumer confidence surveys suggest sentiment on jobs remains depressed. Five of the nine regional Fed surveys that measure activity indicated that employment growth decreased into or stayed in contractionary territory, and when properly weighed and average, payrolls growth slowed notably in April compared to March. Yet the four-week average of initial jobless claims, the main high frequency indicator of inflows into unemployment, has been steady throughout April around the lows observed over the past year-and-a-half, and the ADP weekly employment statistics have been good.
Other factors to consider include the weather, as it overstated the job gains in March by 225k+ according to the San Francisco Fed, which means it could act as a drag this time. Health hiring could cool too from the prior month, while revisions should always be watched, with the high degree of under-sampling that happened last month signalling potential bigger revision effects.
Recent Fedspeak on jobs
In his last press conference as Fed Chair last week, Powell was generally constructive on the US economy but noted that the labour market was softening. He said job gains remain low, labour demand has weakened, and conditions are still cooling though unemployment has been little changed and is close to the natural rate. The outgoing boss also reiterated that the labour market was not a source of inflation currently. The Fed’s focus remains on inflation, with Powell stressing policy is in a good place to wait and see while energy and core inflation risks persist.
Money market pricing & reaction
Fed funds futures have shifted in response to developments in the Middle East. Pre-conflict, roughly two quarter point rate cuts were forecast in 2026. Now there is around 8bps of hikes priced in by year end as inflation worries increase with crude above $100 over a prolonged period.
A weak headline, rise in unemployment alongside softer wage growth would be a clearer sign that the jobs market is losing more momentum. On the other hand, if payrolls come in firm and wages stay hot, the Fed will have more reason to stay patient, especially with oil prices still complicating the inflation outlook.