April jobs report: “Better than expected,” signs of resilience, and AI’s impact

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Lauren Brice: Welcome back to JP Morgan's Making Sense podcast. I'm Lauren Bryce from the North America Rate Sales Team and I'm joined once again by Mike Froli, our chief US economist. Mike, great to have you back.

Mike Feroli: Great to be back.

Lauren Brice: It's been a busy week with a slew of labor data alongside an ever evolving geopolitical backdrop. So let's get straight into it. We came in looking for 50,000 on the payroll number a little bit below the street. What we got was 115K. The unemployment rate held at 4.3% and the work week ticked up. What were your main takeaways from what was delivered?

Mike Feroli: Right. So the headline number was clearly better than expected. It was the first back to back positive gain we've had since last year. Most of the other details of the report were maybe a little on the soft side, but only in ways that undid some of the more favorable details we saw in March. And the net of it is overall the labor market still looks like it's in a pretty good position and it hasn't really changed much momentum that we can perceive in the last six months or so, but definitely feeling a little less downside risk certainly. I think you probably want to look at the last three months of job growth averaging 50,000 a month. That probably takes out some of the concern that labor demand was faltering that you may have felt three to six months ago.

Lauren Brice: Okay. So before we dig into the individual releases that we got this week, you've been flagging the extreme volatility in the establishment survey for a while now. Once you add in weather effects, the birth death model and there's a lot of time then trying to figure out signal versus noise within the data. Does today's number give you more confidence in the underlying trend or is the noise still too loud to draw?

Mike Feroli: I think we're still in a pretty noisy environment when it comes to the data. For example, while the establishment survey employment measure has looked pretty good, last four months, employment as measured by the household survey has actually been down, which also helps explain why the unemployment rate has been stable even though we've had good job growth in the establishment survey and weak labor supply. So I think we have to average all of these kind of measures together and it tells us we're still in a pretty noisy environment, but one that we think is one consistent with a pretty good job market when we take it all together.

Lauren Brice: And digging a little more into the details, the move in U6 drew attention from our client base. What was your rate in the part-time number in the context of strength of labor demand?

Mike Feroli: Right. So U6 moved up two tenths, mostly due to, as you pointed out, an increase in those working part-time who went full-time jobs. But I think this actually reaches back to a point I mentioned earlier, which is some of the softer details really just undid some of the firmer details we saw in March and February. So while the U6 was up, it's still more than a half point below its highs that it reached just a few months ago. So I think this is just one more detail that shows you had some give back from some of the strength we saw in prior months when it came to particularly the household survey.

Lauren Brice: Okay. And turning to other labor indicators we saw this week, JOLTS data was looked at particularly closely. How did you read what we got on Tuesday in the context of the low hire, low fire environment that we've been in for some time?

Mike Feroli: That story is pretty much the same, right? We had a little bit of a pickup in hires. We also had a little bit of a pickup in separations from very low levels, but overall the picture didn't really change that we're in a pretty low churn environment. I think also the picture on labor market slack remains pretty much intact, which is to say when we look at the ratio of job vacancies to unemployed people, it's still hanging out right around one, which is kind of where you want to be in terms of labor market slack, not too hot and not too cold.

Lauren Brice: Yeah. And then I guess if we look at claims which have been a clear bright spot, we got 200K this week so still well below seasonal norms and continuing claims grinding to another low. You flagged residual seasonality that could push higher later in May. So how durable is the positive signal that we're currently getting from the numbers?

Mike Feroli: I think the signal from continuing claims is what stands out and it does look like it's more than just a quirk because when we look at the non-seasonally adjusted numbers, those are down pretty significantly from year ago levels and that was one of the reasons we thought we could see a tick down in the unemployment rate in the April report. We didn't see it, but maybe that's in store for the May report.

Lauren Brice: Okay. Let's pivot a little bit and talk about the AI build out. So construction employment has been choppy You expected the March bounce to reverse in April, but there is a bigger question here and that is how much is the AI infrastructure build out? So data centers, power facilities actually showing up in construction payrolls.

Mike Feroli: Yeah. So we can't directly measure that, right? What we see is various types of building trades and building contractor trades, but we don't directly see AI. We can infer that it might be around something like 200,000, 250,000 jobs are due to AI data center build out, which isn't, it's not nothing, but it's also not a huge number compared to how big the numbers are in AI capex. Obviously a lot of those dollars are just flowing abroad to imported chips.

Lauren Brice: Okay. And keeping on the topic of AI, the Challenger Report flagged AI as the largest single reason for layoffs for the second straight month with tech year to date the highest since 2023. What do you make of all this?

Mike Feroli: So there's obviously, well, there's some talk that AI can be used as an excuse for job layoffs. Also the numbers in the challenger report aren't particularly large. All that being said in the April employment report, I think it's interesting that the areas where you saw job growth were basically healthcare and distributive trades, which is retail, wholesale, trade and transportation. Things that you think are going to be pretty immune to AI, at least in the short run or the near term, whereas things like professional and business services continue to be a little bit underwhelming and that's the areas where you probably at least initially are going to see AI potentially hit employment growth. I do think in the jobs report we have been and are continuing to see features that are consistent, at least with the story that AI is replacing some jobs.

Lauren Brice: And then when you think about public versus private payrolls, the ex- federal government three month average has been running meaningfully stronger than the headline. Are we now seeing DOGE show up clearly and consistently in the data that we're seeing? And do you wonder about second order effects in the private sector hiring and then I guess also consumer spending?

Mike Feroli: Yeah. So I think we've definitely seen a DOGE effect in federal payrolls and that's been continuing perhaps even a little longer than the initial impact. I think it's hard to say that you're seeing a whole lot of spillover into private sector activity. Private payrolls were strong again in April and consumer spending overall looks pretty good. That being said, if you really kind of scratch beneath the surface, looking at our Chase card data, it has been a little weaker in the DC area as you might expect, but I think at a national level, it's pretty hard to see a major imprint of DOGE.

Lauren Brice: Great. Okay. Okay, thanks. And then I guess turning to the Fed where we've been firmly in the hold camp since January, rates options, markets are now pricing in a higher probability of a hike than a cut by year end. After the week of strong claims, solid ADP, mixed jolts and a payroll print that came in ahead of your own forecast, does anything here change the bias to your call and is there any data point that would look to genuinely move you?

Mike Feroli: Yeah. So no, we continue to be very comfortable thinking that the Fed's going to be on hold for the rest of this year and think they could be hiking by the end of next year. I think we took some added comfort from the most recent FOMC meeting where you had three dissenters for a more hawkish statement and then just even after that you had two other Fed presidents say they would have voted along those lines as well. So I think the committee is clearly turning in a direction that is moving away from a bias to cut. So as I said, we're pretty comfortable with our call. What would get us to change? I think if we were to see ... I think to get a hike sooner than we forecast, we're going to need to see probably a tightening in the labor market that generates some wage inflation, right? Wage inflation has been generally pretty tame here. I think to get them back into an easing mode, I think you would have to have an unemployment rate that broke the old high of 4.5% on the upside.

Lauren Brice: Great. Thanks, Mike. Final question from me. The unrounded employment rate actually ticked up a few basis points whilst the part rate dipped and you've noted risk of returning to last November's four and a half percent high on the headline number. So in one word, resilient labor market or a fragile one and then I guess what's the most important thing you'll be watching on the economic front for the month ahead? You can choose what sounds better. I don't know. It just sounded very wordy and I guess there was two questions also, not one.

Mike Feroli: Yeah. So I think it's pretty resilient at least for now the unemployment rate even on a less rounded basis is down 20 basis points from its highs of late last year. I think we've been chopping around a trend that is pretty close to full employment. Obviously one of the big risks we're thinking about now is how the spillover of the geopolitical situation could affect consumer spending. Consumers have held in pretty well despite higher gas prices. If gas prices were to move up above $5 a gallon, I think then you'd have to get a little bit ... You'd have to answer some questions about just how resilient the consumer is and how that could feed back into the labor market.

Lauren Brice: Mike, thank you. Always a great framework for a complicated week of data. Mike's full research is available on the J.P. Morgan markets platform. We'll be back next month, but until then take care.

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