Core Data: Job Growth Beats Expectations, Unemployment Rate Steady

Data released by the U.S. Labor Department on Friday showed that nonfarm payrolls increased by 177,000 in April, exceeding market expectations, while the unemployment rate held steady at 4.2%. Despite the Trump administration having announced the highest level of tariffs in decades, the job market remains robust, with hiring concentrated in industries such as healthcare, financial activities, social assistance, and transportation and warehousing.

Economists' Interpretation: Policy Drag Not Yet Visible, but Risks Remain

Economists at BofA Securities noted in a report: "The April employment report was overall solid, with no substantial signs yet of policy dragging on employment." The policy factors they mentioned include tariffs, immigration restrictions, and federal layoffs driven by the Department of Government Efficiency led by Elon Musk. However, the economists also stated: "We will continue to monitor this trend."

Economists at the Federal Reserve and several institutions had previously stated that the Trump administration's adjustments in regulation, fiscal policy, border control, and global trade have clouded the economic outlook. This stronger-than-expected employment report highlights that uncertainty—the data was collected in mid-April and only partially reflects labor market conditions during tariff negotiations with dozens of trading partners.

"Despite stable data this month, immigration restrictions could weigh on job growth in the coming months, especially in industries such as leisure and hospitality, education and healthcare, and construction. Tariffs could also impact trade, transportation, and warehousing sectors starting in May." — BofA Securities Economists

Impact on Fed Policy: Rate Cut Expectations Cool

Economists believe the April employment report validates the Federal Reserve policymakers' decision to hold rates steady at their last two meetings—they need more data to assess the impact of Trump's policies. Following the report's release, interest rate futures traders reduced their bets on a rate cut at the Fed's June 17-18 meeting. According to the CME FedWatch tool, the market now sees a 37% probability of a 25-basis-point cut at that time, down from 58% on Thursday.

The market widely expects the Fed will not adjust the federal funds rate at its next meeting on May 6-7. BofA Securities economists said: "Following today's data, we believe the bar for a rate cut in June or even July has risen significantly. Fed Chair Powell may reiterate at Wednesday's post-meeting press conference that the Fed is in no hurry to cut rates."

Diverging Economic Data: Signals of Slowing Growth and Weak Consumption

Since the Trump administration imposed tariffs, some hard economic data have signaled growth risks. Data released by the Commerce Department on Wednesday showed that the gross domestic product (GDP) contracted at an annualized rate of 0.3% in the first quarter, mainly due to businesses rushing imports ahead of the tariff announcement at the start of the month. Consumer spending grew 1.8% in the first quarter, the slowest pace since the second quarter of 2023, consistent with recent surveys showing declining household confidence in economic growth, employment, and inflation prospects. Business confidence surveys have also declined.

Additionally, data released by the Institute for Supply Management (ISM) on Thursday showed that manufacturing activity contracted for the second consecutive month in April, with the PMI index falling to near the breakeven level. Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee, said in a statement: "Demand and production declined, companies continued to cut jobs, and surveyed firms are navigating an uncertain economic environment." He also noted: "Tariffs led to a slight acceleration in price increases, causing backlogs of new orders, slower supplier deliveries, and higher manufacturing inventories."