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What to Expect in the April U.S. Jobs Report

U.S. job growth likely rebounded in April and wages increased, pointing to a further tightening in labor market conditions that could pave the way for the Federal Reserve to raise interest rates next month.

Nonfarm payrolls probably increased by 185,000 jobs last month, according to a Reuters poll of economists, after a paltry gain of 98,000 in March.

The March gain, the smallest in 10 months, was dismissed as payback after unseasonably mild temperatures in January and February pulled forward hiring in weather-sensitive sectors like construction and leisure and hospitality.

The Labor Department will release its closely watched employment report at 8:30 a.m. EDT on Friday.

Job gains in line with expectations would support the Fed’s contention that the pedestrian 0.7% annualized economic growth pace in the first quarter was likely “transitory,” and its optimism that economic activity would expand at a “moderate” pace.

“The labor market continues to tighten, we have on average seen inflation rise over this past year,” said Ray Stone, an economist at Stone & McCarthy Research Associates in Princeton, New Jersey. “From the Fed’s perspective, there is probably going to be a policy tightening in June and probably again sometime over the balance of the year.”

The Fed on Wednesday kept its benchmark overnight interest rate unchanged and said it expected labor market conditions would “strengthen somewhat further.”

The U.S. central bank raised its overnight interest rate by a quarter of a percentage point in March and has forecast two more increases this year.

Average hourly earnings likely rose 0.3% last month, partly because of a calendar quirk. While that would keep the year-on-year increase at 2.7%, there are signs that wage growth is accelerating as labor market slack diminishes.

A government report last week showed private sector wages recorded their biggest gain in 10 years in the first quarter.

Near Full Employment

The economy needs to create 75,000 to 100,000 jobs per month to keep up with growth in the working-age population. Job growth averaged 178,000 per month in the first quarter.

The unemployment rate probably ticked up to 4.6% last month from a near 10-year low of 4.5% in March. With the labor market expected to hit a level consistent with full employment this year, payroll gains could slow as firms struggle to find qualified workers.

“We have seen a steady increase in anecdotal evidence of a mismatch in the labor force,” said David Donabedian, chief investment officer at CIBC Atlantic Trust Private Wealth Management in Baltimore. “There are a number of industries that are having trouble hiring enough qualified personnel and those things will eventually lead to upward wage pressures.”

Construction and manufacturing hiring likely led the anticipated acceleration in job growth last month. Retail employment probably declined for a third straight month.

Retailers including J.C. Penney (JCP), Macy’s (M) and Abercrombie & Fitch (ANF) have announced thousands of layoffs as they shift toward online sales and scale back on brick-and-mortar operations.

More people likely entered the labor force in April, which could led to a marginal rise in the participation rate, or the share of working-age Americans who are employed or at least looking for a job. The labor force participation rate is at an 11-month high of 63%.

“At this point there just aren’t a lot of excess discouraged workers left and dropout rates of unemployed workers are already low, so there’s not a lot of apparent room left to extend the participation rate rebound,” said Ted Wieseman, an economist at Morgan Stanley in New York.