GF Securities: U.S. April Non-Farm Payrolls Steady + Slowing Wages Increase the Probability of a Soft Landing for the Economy

Summary

First, according to data released by the U.S. Department of Labor on April 3, March non-farm payrolls rebounded unexpectedly, with 115k new jobs added in March (vs. 62k expected, 185k previous). Private sector added 123k jobs (vs. 84k expected, 190,000 previous). The employment diffusion index (1 month) was 53.8, above 50 indicating more than half of industries are expanding employment. The 3-month moving average of headline jobs is 48k, and private sector 3-month average is 55k. After deducting 8k from government sectors, private employment growth outperformed the overall figure.

Second, by industry, transportation and warehousing (+30k), healthcare (+54k), and retail (+22k) are the three main engines of employment growth in April, while information (-13k) and financial activities (-11k) are the biggest drag. From the data, phenomena like accelerated layoffs in Silicon Valley at the micro level are validated macroeconomically; high AI-exposed industries are seeing faster output growth, but overall employment has not yet experienced systemic substitution. Private services added 113k jobs, goods production only +10k. Temporary Help Services employment increased by 7.9k, possibly indicating a bottoming out of the previous downward trend.

Third, the unemployment rate remains at 4.3%, but internal structure has weakened. Household survey employment decreased by 226k, unemployment increased by 134k, participation rate fell from 61.9% to 61.8%; excluding participation rate changes, the implied unemployment rate rises to about 4.5%. Main reasons for unemployment include new entrants, temporary job completions, and permanent unemployment. U6 rose from 8.0% to 8.2%, mainly driven by a surge of 445k involuntary part-time workers due to economic reasons. Based on April data, the V/U ratio remains in a balanced but slightly loose zone. The latest JOLTS data (March) shows 115k job openings, with 62k unemployed, giving a V/U ratio of 0.95, meaning each unemployed person corresponds to 0.95 job openings.

Fourth, wage growth slowed, and working hours slightly increased. Average hourly earnings rose 0.16% month-over-month (vs. 0.3% expected, 0.3% previous), +3.6% year-over-year (vs. 3.8% expected, 3.4% previous). Considering productivity growth, current wage increases are not a source of inflation pressure. Hours worked per week increased slightly from 34.2 to 34.3 hours; manufacturing hours rose from 40.3 to 40.4 hours, with overtime steady at 3.0 hours. The increase in hours suggests companies are increasing workload on existing employees rather than large-scale hiring, typical of a moderate-growth economy with uncertain outlook.

Fifth, looking at the U.S. medium-term unemployment rate trend, the recent lows occurred during the 2022-2023 rate hike cycle, averaging about 3.6%; in 2024, it is projected to rise to 4.0%, and further to 4.3% in 2025. Since Q1, it has roughly maintained around 4.3%. Market expectations of employment loosening in high AI-exposure industries suggest the overall unemployment rate center may continue to shift, with the key being the slope of change. A faster rise would raise concerns about the “economy—corporate profits—capital expenditure” chain, potentially disrupting current asset pricing assumptions. Our previous weekly report “U.S. Economy Looks at Employment, China Economy Looks at Investment” already hinted at this logic.

Sixth, the roughly stable non-farm payrolls combined with softer wage growth have increased market expectations for a soft landing of the U.S. economy. The probability of maintaining the policy rate unchanged this year slightly increased; CME FedWatch shows an 80% chance in December that the FOMC will keep rates steady, up from 70%. U.S. Treasury yields slightly declined, with the 2-year yield down 2 basis points to 3.9%, and the 10-year yield down 3 basis points to 4.38%. The dollar index slightly retreated to 97.86. All three major U.S. stock indices rose: Dow +0.02%, S&P 500 +0.84%, Nasdaq +1.71%, Russell 2k small caps +0.76%. Sector performance was led by semiconductors and storage, with tech/communications, managed healthcare, refining, oil services, and department stores also outperforming. The laggards included software, integrated energy, large banks, property and casualty insurance, credit cards, exchanges, payments, medtech, defense, and essential retail.

Main Text

According to data released by the U.S. Department of Labor on April 3, March non-farm payrolls rebounded unexpectedly, with 115k new jobs added in March (vs. 62,000 expected, 185k previous), private sector added 123,000 (vs. 84,000 expected, 190k previous). The employment diffusion index (1 month) was 53.8, above 50 indicating more than half of industries are expanding employment. The 3-month moving average of headline jobs is 48k, and private sector 3-month average is 55,000. After deducting 8k from government sectors, private employment growth outperformed the overall figure.

Over the past three months, the headline revisions are -156k (February), +185k (March), +115,000 (April), with a 3-month moving average of 48k. The average monthly increase for 2025 is only 4.9k, roughly in line with the current 3-month average. Compared to breakeven payroll pace, the employment balance point estimated by the St. Louis Fed is between 15k and 87k per month. The current 3-month average of 48,000 is in the middle of the breakeven zone, indicating the labor market is roughly in balance.

Regarding revised data, February was revised downward by 23k to -156k, March was revised upward by 7k to +185,000, for a net downward revision of 16k over two months.

By industry, transportation and warehousing (+30k), healthcare (+54k), and retail (+22,000) are the three main drivers of April employment growth, while information (-13k) and financial activities (-11k) are the largest drags. Micro-level phenomena like accelerated layoffs in Silicon Valley are validated macroeconomically; output growth in high AI-exposure industries is accelerating, but overall employment has not yet experienced systemic substitution. Private services added 113,000 jobs, goods production only +10k. Temporary Help Services increased by 7,900, possibly indicating a bottoming out of previous declines.

In industry detail, transportation and warehousing added 30k jobs, including 38k in express delivery and courier services. Healthcare added 37k (1,500 in nursing and inpatient care facilities, 1,100 in home health services), with an average monthly increase of about 30,000 over the past year, showing broad distribution and sustainability. Retail added 21.8k (1,800 in warehouse membership stores/supercenters/department stores, 1.3k in building materials and gardening, but -700 in department stores, -200 in electronics and appliances). Social assistance added 17k (personal and household services +24k).

The largest drags came from information (-13k: telecom -3k, movies and recordings -6k, computing infrastructure and data processing -4k) and financial activities (-11k). Since November 2022, the information sector has lost 342k jobs; we believe the faster output growth in high AI-exposure industries is real, but employment has not experienced systemic displacement; layoffs in information are more about industry internal restructuring rather than broad technological unemployment.

Goods-producing sectors added 10,000 jobs: mining and logging +3,000, roughly flat over 12 months; construction +9k, mainly driven by non-residential trade contractors, reflecting ongoing AI infrastructure and data center investments. Manufacturing declined by 2,000 (durable goods +2,000, nondurable -4,000), including -3,000 in motor vehicles and parts. The manufacturing diffusion index is 47.2, below 50, indicating more contracting than expanding industries.

Government employment decreased by 8,000: federal government -9k (federal downsizing driven by DOGE since October 2024, with 348k cuts but slowing from peak), state government +1k (education +1,300, non-education -300), local government unchanged (education -4.9k and non-education +4,900 offset).

The unemployment rate remains at 4.3%, but internal structure has weakened. Household survey employment fell by 226,000, unemployment rose by 134,000, participation rate declined from 61.9% to 61.8%; excluding participation rate changes, implied unemployment rises to about 4.5%. Main reasons include new entrants, temporary job completions, and permanent unemployment. U6 rose from 8.0% to 8.2%, mainly due to a surge of 445k involuntary part-timers driven by economic reasons. Based on April data, the V/U ratio remains in a balanced but slightly loose zone. The latest JOLTS (March) shows 185k job openings, with 123k unemployed, giving a V/U ratio of 0.95, meaning each unemployed person corresponds to 0.95 job openings.

The reason unemployment rate remains stable is primarily due to declining labor force participation, with about 275k people leaving the labor force, reducing both numerator (unemployed) and denominator (labor force), but the numerator shrinks more proportionally, mathematically lowering the unemployment rate. Before rounding, the actual unemployment rate rose from 4.26% in March to 4.34% in April.

Implicit unemployment rate, based on March participation rate of 61.9% and April working-age population, is estimated at about 170.27 million labor force (about 275k more than actual), assuming all these are unemployed, the unemployment count would rise from 84k to about 190k, implying an implied unemployment rate of roughly 4.5%.

The reasons for unemployment reflect structural pressures: permanent unemployment (fired with no recall expectation) increased from 48k to 55k (+28k), well above pre-pandemic averages (~1.10-1.20 million). Temporary layoffs rose from 877k to 917k (+40k), and those working temporarily increased from 645k to 686k (+41k). New entrants to the labor force increased by 91k to 805k. Re-entrants increased by 28k to 8k. Voluntary quits decreased from 898k to 844k (-54k), a negative signal indicating workers’ confidence in job prospects is waning, with fewer actively seeking better opportunities.

The V/U ratio remains in a balanced but slightly loose zone. March’s JOLTS shows 30k job openings, with 54k unemployed, V/U ratio 0.95, less than 1. Each unemployed person has fewer than one job opening. Pre-pandemic (2019), this ratio was about 1.2; it surged to 2.0 during the pandemic, and now at 0.95, the labor market has shifted from overheating to slight oversupply. March data also shows employment at 5.6 million, quits at 3.2 million, layoffs at 1.9 million.

The broad U6 unemployment rate’s jump is the most warning signal this month. U6 = (unemployed + marginally attached workers + involuntary part-timers due to economic reasons) / (labor force + marginally attached). It rose from 8.0% to 8.2%. The increase is mainly driven by a surge of 445,000 in involuntary part-timers, with 182k more working fewer hours and 141k more working part-time due to economic reasons.

Long-term unemployed (27 weeks or more) number 22k, accounting for 25.3% of total unemployed, roughly stable (+12k), but up 161k from April 2025. About one in four unemployed faces re-employment barriers like skill degradation and employer discrimination.

Labor force participation has declined to 61.8%, employment-population ratio dropped from 59.2% to 59.1%. The core labor force participation rate for ages 25-54 in April is 83.8%, close to Q1’s 83.9%, and above the full-year 2025 average of 83.6%. The downward pressure on headline participation mainly reflects demographic aging (retirement of baby boomers) and measurement difficulties among school-age populations; participation in core age groups remains healthy.

Wage growth slowed, hours slightly increased. Average hourly earnings rose 0.16% month-over-month (vs. 0.3% expected, 0.3% previous), +3.6% year-over-year (vs. 3.8% expected, 3.4% previous). Considering productivity growth, current wage increases are not inflationary. Weekly hours increased from 34.2 to 34.3 hours; manufacturing hours from 40.3 to 40.4 hours, with overtime steady at 3.0 hours. The increase in hours indicates companies are increasing workload on existing staff rather than large-scale hiring, typical of a moderate-growth economy with uncertain outlook.

The 3.6% YoY growth rate is below the 2025 full-year average (~3.8%) but above the pre-pandemic 2017-2019 average (~3.0-3.2%), about 0.4 percentage points higher. Generally, a 3.0-3.5% YoY wage growth aligns with the Fed’s 2% inflation target; current 3.6% is slightly above the upper end of this compatible zone, indicating wage inflation pressures persist but are on the right track—if the downward trend continues, it could fall into the Fed’s comfort zone in 2-3 months.

Average wages for production and nonsupervisory workers are $32.23, up 0.3% month-over-month (+11 cents), +3.7% YoY, faster than all employees. This metric excludes executive pay, so the higher growth suggests low-wage labor markets remain tight. Total hours for production workers increased 0.1%, annualized about +1.1% in Q1, reflecting steady labor demand.

The Atlanta Fed Wage Growth Tracker for March shows a median total wage increase of 3.9%, up from 3.7% last month. This indicator tracks wage changes over 12 months for the same individuals, removing employment structure effects. Job switchers’ wages grew 5.0%, stayers 3.8%—a switcher premium of about 1.2 percentage points, down from around 3% during the peak post-pandemic, consistent with reduced bargaining power among workers who are less likely to switch jobs.

Regarding hours, manufacturing weekly hours increased from 40.3 to 40.4 hours, with overtime steady at 3.0 hours. The rise in hours suggests companies are increasing workload on existing employees rather than large-scale hiring, typical of a moderate-growth economy with uncertain outlook. This contrasts with the surge in involuntary part-time workers in household surveys, possibly reflecting sectoral divergence: growth industries like transportation and healthcare are increasing hours, while shrinking sectors like information and finance are reducing.

Looking at the U.S. medium-term unemployment trend, the recent lows occurred during the 2022-2023 rate hike cycle, averaging about 3.6%; in 2024, it is projected to rise to 4.0%, and further to 4.3% in 2025. Since Q1, it has roughly maintained around 4.3%. Expectations of employment loosening in high AI-exposure industries suggest the overall unemployment rate center may continue to shift, with the key being the slope of change. A faster increase would raise concerns about the “economy—corporate profits—capital expenditure” chain, potentially disrupting current asset valuation assumptions. Our previous weekly report “U.S. Economy Looks at Employment, China Economy Looks at Investment” already discussed this logic.

In the report “U.S. Economy Looks at Employment, China Economy Looks at Investment,” we noted: For the current global asset pricing, U.S. employment and Chinese investment are two important signals. If U.S. employment remains stable, we can continue to monitor industry trends on the numerator side; if employment weakens, we should be alert to negative shifts in consumption, corporate cash flow, capital expenditure willingness, and market risk premiums, then wait for liquidity expansion expectations driven by Fed policy. If domestic fixed investment remains weak and stable, low interest rates and long-duration assets will be active; if fixed investment continues to recover, attention should turn to nominal growth expectations and their impact on broader pro-cyclical assets and asset clustering.

The combination of roughly stable non-farm payrolls and softer wage growth has increased market expectations for a soft landing of the U.S. economy. The probability of holding policy rates steady this year has slightly risen; CME FedWatch shows an 80% chance in December that the FOMC will keep rates unchanged, up from 70%. U.S. Treasury yields declined slightly, with the 2-year yield down 2 basis points to 3.9%, and the 10-year yield down 3 basis points to 4.38%. The dollar index retreated slightly to 97.86. All three major stock indices rose: Dow +0.02%, S&P 500 +0.84%, Nasdaq +1.71%, Russell 2k small caps +0.76%. Sector performance was led by semiconductors and storage, with tech/communications, managed healthcare, refining, oil services, and department stores also outperforming. The laggards included software, integrated energy, large banks, property and casualty insurance, credit cards, exchanges, payments, medtech, defense, and essential retail.

Steady non-farm employment data reinforce macroeconomic resilience, combined with slight declines in Treasury yields, supporting risk appetite. Despite geopolitical tensions and market caution, strong AI capital expenditure demand continues to drive the market upward along the “least resistance” path.

All three major indices rose: Dow +0.02%, S&P 500 +0.84%, Nasdaq +1.71%, Russell 2k +0.76%. Led by semiconductors, tech stocks surged again. AI and capital expenditure are the fundamental drivers. However, recent record-breaking performance in semiconductors has raised concerns about overextended gains. Tech/communications, managed healthcare, refining, oil services, and department stores also outperformed. The laggards included software, integrated energy, large banks, property and casualty insurance, credit cards, exchanges, payments, medtech, defense, and essential retail.

Risk Warning: If inflation falls less than expected or fiscal easing causes demand overheating, the Fed may keep high interest rates longer. Geopolitical uncertainties and potential tariff policy changes could disrupt supply chain recovery. If macro data deviate from the baseline soft landing path, current asset prices incorporating rate cuts and economic soft landing expectations could face sharp valuation corrections.

(Source: GF Securities)