April's non-farm payroll figure came in at 266,000 jobs badly missing expectations of a million jobs added in the month and rupturing the narrative of a smooth rebound. It also likely pushes back any notion of the Fed tightening policy via tapering its asset purchases.
Inside the Numbers
The unemployment rate increased to 6.1% which is a significant improvement from 14.7% in April of last year. However, the economy remains short about 8 million jobs from its pre-crisis level. Economists were expecting the unemployment rate to drop to 5.8%.
For months, economists have been too pessimistic about the recovery in the labor market. Now, they were proved to be too optimistic. Equally important, job figures for the previous month were also revised lower to 770,000 from above 900,000.
One caveat is that the job figures are quite noisy month to month and that the underlying trend remains positive. However, one challenge for businesses has been the availability of workers as 4.6 million workers exited the labor force with only half expected to rejoin by the end of the year. Many are attributing this to the enhanced unemployment benefits for workers which boosts aid by $300 per week until September.
The bulk of gains came from the leisure and hospitality sectors which added 331,000 workers. However, it's still 2.9 million workers shy of pre-crisis levels. Schools reopening contributed another 31,00 jobs as well. Areas of weakness were temporary help which showed a drop in 111,000, and manufacturing saw a decline of 18,000.
It seems the recovery's biggest challenges are the availability of workers, people's fears about contracting the virus, and the drop in vaccination rates as some seem unwilling to take it.
In some ways, the tepid report is a validation of the Federal Reserve's dovish approach and refusal to consider any change to its policies until inflation targets are exceeded "on a symmetrical basis."
Stock Price Outlook
Early in the market's recovery, there tends to the dynamic of "good news is bad and bad news is good." So, the market had a big rally on last month's beat and is rallying on today's miss. There was increasing chatter that the rising inflationary pressures would force the Fed's hand. This news certainly pushes back that timetable.
In fact, this pace of job creation actually increases the chances of another fiscal stimulus passing on the margins. Therefore, it's not surprising that this is the catalyst for the S&P 500
