April Payrolls: Too Soon?
If the Fed waits for firing, it'll likely be too late to avoid a recession, though they are clearly not pulling all the business confidence levers.
Low Hiring, Low Firing
“Employment was little changed to up slightly in most Districts, with one District reporting a modest increase, four reporting a slight increase, four reporting no change, and three reporting a slight decline. This is a slight deterioration from the previous report with a few more Districts reporting declines. Hiring was generally slower for consumer-facing firms than for business-to-business firms.” Beige Book - April '25
Chair Powell has characterized the labor market as ‘low hiring, and low firing’. Based on the March Job Openings & Labor Turnover Survey, April Regional Federal Reserve Surveys, and April Beige Book, Friday’s May Employment Situation Report might be too soon to fully reflect the impact of the Trump Trade business confidence shock. In our view, a report that is not soft enough to force the Fed to abandon their labor market is solid narrative, is the worst scenario for equity investors and the economy, particularly small businesses. There were two reports this week, the April Conference Board’s Labor Differential and ADP Employment Surveys that suggest the negative convexity in labor demand models, the Beveridge and Phillips Curve, may have reached the tipping point. Additionally, the most robust of the wage series, the quarterly employment cost index, settled the debate between the average hourly earnings and Atlanta Fed wage tracker in favor of a continuation of the wage growth cooling that was evident throughout ‘24 but especially sharp in 4Q24.
We’ve been arguing that the FOMC’s ‘patience’ is ill-advised, non-linear increases in the unemployment rate begin with declines in hiring, waiting for layoffs to materialize is a suboptimal approach to risk management. In other words, if the Fed doesn’t pivot to resuming rate cuts next week, the risks they will be too late to prevent a recession will rise sharply. We will dig into our outlook for the labor market in the balance of this note.
