US Job Growth Slows, Reviving Rate Cut Speculation

 

The US labor market showed signs of cooling in April, with job growth slowing and the unemployment rate ticking higher. Employers added 175,000 positions, the fewest since October, and the jobless rate rose to 3.9% from 3.8% in March. While the pace of job growth remained relatively resilient, the slowdown has revived speculation about a potential rate cut by the Federal Reserve later this year.

The Fed has been closely watching the labor market for signs of a slowdown, as it seeks to balance its inflation-fighting efforts with the risk of an economic downturn. With borrowing costs at two-decade highs, the central bank is looking for evidence that its rate hikes are starting to take effect. The April jobs report provides some of that evidence, and analysts believe it could bolster the case for a rate cut.

"This is the first sign of weakness in the US jobs market, and it's a welcome development," said Neil Birrell, Chief Investment Officer at Premier Miton Investors. "Rate cuts will move back up the agenda, and markets will take this as good news."

The Fed sharply increased interest rates starting in 2022 to cool the economy and ease price pressures. While inflation has cooled somewhat, it remains above the Fed's 2% target, raising doubts about the timing of a rate cut. However, the April jobs report suggests that the labor market may be starting to feel the effects of higher borrowing costs, which could pave the way for a rate cut later this year.

Satyam Panday, chief US economist at S&P Global Ratings, said the signs of a hiring slowdown were expected and should help cool inflation without being so severe as to raise concerns about a recession. "I would call it a decent jobs report, but not too hot, so the Federal Reserve really likes this," he said, adding that he expects the Fed to be ready to cut rates by "perhaps sometime in the fall or maybe December."

The April jobs report showed that most sectors added workers, with healthcare firms driving the gains. Average hourly earnings rose 3.9% over the 12 months to April, a slower pace than the previous month. While the labor market remains robust, the slowdown in job growth and the rise in the unemployment rate suggest that the Fed's rate hikes are starting to take effect.

The news sent US shares higher, as investors welcomed the signs of a cooling labor market. The Fed's next move will be closely watched, as it seeks to balance its inflation-fighting efforts with the risk of an economic downturn. With the labor market showing signs of slowing, the stage may be set for a rate cut later this year.