Summary
April’s jobs report delivered a 13th consecutive beat on the NFP headline. NFP printed at +235k - a meaningful upside versus the consensus of +180k. Unemployment rate numbers and alternative measures of labour market slack were either unchanged or suggested a degree of further tightening in April. Earnings numbers were likely skewed stronger by compositional effects but were firm even with that skew factored in.
Overall, the jobs report was on the strong side. Although a slowdown in payroll additions is more and more in evidence, with January’s report clearly an outlier, the report still looks strong on a relative basis versus where we are in the tightening cycle.
While not a game-changer in and of itself, the latest jobs report adds conviction to our view that the probability of further Fed tightening is under-priced. With each successive labour market beat, we must mark up the probability we assign to the risk that neutral rates are simply higher than commonly believed, and mark down the probability that transmission lags are simply longer/distorted during this cycle.
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