The U.S. Economy Added Over Twice as Many Jobs in April Than Expected. Here's Why the Report Offers Both Good and Bad News for the Stock Market

The U.S. economy added 115,000 jobs to nonfarm payrolls in April, crushing consensus estimates of 55,000. It’s now the second month in a row that nonfarm payrolls have come in much higher than expected, and the first consecutive month of job gains in over a year.

The unemployment rate held steady at 4.3%.

In April, the economy added jobs in the following sectors: healthcare (37,000), transportation and warehousing (30,000), retail trade (22,000), and social assistance (17,000). The economy lost jobs in information services (-13,000) and telecommunications (-3,000).

Image source: Getty Images.

Average hourly earnings increased 0.2% from the prior month and are up 3.6% year over year. Both numbers fell short of estimates that projected a 0.3% monthly gain and a 3.8% annual gain.

Here’s why the report has both good and bad news for the stock market.

An overall strong report with pockets of weakness and concern

This is a fairly strong report. The broader benchmark S&P 500 and tech-heavy Nasdaq Composite rose roughly 0.60% and nerly 1.10%, respectively, as of 9:54 a.m. ET.

In recent years, strong job gains haven’t always been well received by the market because investors have been concerned that more job gains could drive more spending and, in turn, persistent inflation. But at this point, I do think you want to see gains.

Higher oil prices stemming from the Iran war are going to put pressure on consumers and businesses, so you don’t want to see people losing more jobs as these pressures start to work their way through the economy. The consumer has remained incredibly resilient since the pandemic, but is not invincible.

There are also pockets of weakness in this report. Average hourly earnings came up short of estimates and is a very important indicator of the health of the labor market, reflecting how much people are making at their jobs.

Additionally, a big chunk of the gains once again came from healthcare and social assistance.

These sectors are typically not viewed as favorably by economists as gains in other sectors. They can have high churn rates, aren’t necessarily high-paying jobs, are driven by needs rather than economic expansion, and can also rely on government funding.

US Nonfarm Payrolls MoM data by YCharts

Another continuing issue is information employment, which lost 13,000 jobs in April. Since peaking in November 2022, this sector has lost 342,000 jobs, or 11%. Many believe this disruption stems from the emergence of artificial intelligence, which has raised concerns about future job losses in nearly all sectors.

According to the CME Group, which analyzes the likelihood of changes to the federal funds rate based on 30-day futures, the market still sees a very high likelihood that the Federal Open Market Committee (FOMC) will hold interest rates steady at its next meeting in June, as of this writing.

However, the likelihood of a rate cut ticked up a few percentage points, suggesting investors see more weakness in the labor market, although it’s still only at 6%. Keep in mind that these probabilities are constantly changing.

Ultimately, I think investors should be reasonably happy with this report, given the circumstances and all of the uncertainties in the labor market.

It doesn’t mean there aren’t still problems and uncertainty in the labor market. But with consumers facing potentially higher prices in the near term and concerns around AI dislocation still quite prevalent, adding double the number of jobs than expected is a positive.