Instant View: U.S. April payrolls gain much smaller than expected

NEW YORK (Reuters) – U.S. employers hired far fewer workers than expected in April, likely frustrated by labor shortages, leaving them scrambling to meet booming demand as the economy reopens amid rapidly improving public health and massive financial help from the government.

Nonfarm payrolls increased by only 266,000 jobs last month after rising by 770,000 in March, the Labor Department said in its closely watched employment report on Friday. Economists polled by Reuters had forecast payrolls advancing by 978,000 jobs.

MARKET REACTION:

STOCKS: The S&P 500 and Nasdaq opened slightly higher and the Dow Jones slightly lower before steadying after the open.

BONDS: Yields on benchmark 10-year notes fell sharply, dipping below 1.5% and last at 1.5594% down about a basis point since the report. Two-year Treasury yields fell to 0.1389%

FOREX: The dollar index turned 0.25% lower

COMMENTS:

QUINCY KROSBY, CHIEF MARKET STRATEGIST, PRUDENTIAL FINANCIAL, NEWARK, NEW JERSEY

“There’s a mismatch in the labor market in terms of demand. We know job openings are strong. We see it in the JOLTs report.”

“This is probably a one-off because the labor market continues to normalize and we should see stronger numbers as the vaccination campaign continues and those who are staying home because of the stipend realize it will expire by the time we get to the end of the summer.”

“This is seeding a discussion about whether or not the government largess with regards to stipends is keeping workers at home and not going out into the labor force.”

“The drop in the 10-year Treasury before the market open is fuelling Nasdaq as the Dow is going into the red at least in the premarket. The 10-year Treasury yield pulled down as a result of this report.

ALTHEA SPINOZZI, FIXED INCOME STRATEGIST, SAXOBANK, COPENHAGEN

“It looks like we are heading to stagflation. Therefore it is necessary to hedge against both sides: TIPS, gold, commodities other than gold, nominal bonds providing high yield (therefore junk because nothing else is providing a yield high enough to create a buffer against inflation), and some EM local currency bonds exposure to diversify.”

BORIS SCHLOSSBERG, MANAGING DIRECTOR OF FX STRATEGY, BK ASSET MANAGEMENT, NEW YORK

“The dollar is really getting spanked this morning.”

“The number was so out of consensus, that I think the market expectation of super-high rates and a squeeze on inflation is going to go down by the wayside, and that obviously means more liquidity from the Fed, it also means that U.S. rates stay low at these levels for quite a while and it’s going to keep the pressure on the dollar.”

“I don’t see the dollar really collapsing in this scenario because it’s not like anyone else around the world is seeing accelerating growth, but the story going into the report was that the U.S. was really going to pull away. What you saw was a very sharp disappointment. It could be just a monthly blip as the economy starts to come back up, but until the market gets really hardcore evidence the labor market is starting to fire on all engines, U.S. yields are going to stay depressed and that’s going to keep a cap on any type of dollar rally.”

LARRY ADAM, CHIEF INVESTMENT OFFICER, RAYMOND JAMES, BALTIMORE, MARYLAND

“One number doesn’t make a trend, but it takes some of the heat off the economy overheating and inflation moving dramatically higher. You’re seeing that getting reflected in the interest rates, they had the most immediate reaction.”

“This puts less pressure on Fed to prematurely talk about tapering. They wanted to be patient and hold off on it.”

“In some ways, it might give President Biden more of a case to get through additional fiscal recovery packages.”

“The momentum in the economy remains strong, and I wouldn’t overreact to one number. I think it will take a little bit longer to get fully recover, but the trend for the economy continues to be very solid.”

JOSEPH LAVORGNA, AMERICAS CHIEF ECONOMIST, NATIXIS, NEW YORK

“Anybody who thought the Fed is going to be tapering sooner than later, that’s not happening. The five-year forward IOS, which is the terminal funds rate, that drives the 10-year yield. So, if the Fed isn’t moving as soon then the terminal rate comes down and the 10-year note rallies.

“It is a it is a very soft report. There is no inflation coming on the labor side. The economy is booming, and the labor market recovery is still ongoing, although it might be losing a little bit of steam.

“This year’s growth is still great; the labor market is still going to recover. But my view of where we’re going on the macro policy is potentially going to damage the ability of the economy to grow as fast as it would like beyond this year. This year is still the recovery year, I still believe that is very much in place.

“Small businesses are not particularly optimistic on the economic outlook for a variety of reasons. If we are going to put forward significant spending and tax initiatives, this is going to hurt the economy next year.”

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK

“It’s a disappointing report. The participation rate is stuck in the mud. The unemployment rate at 6.1% is another disappointment.

“It’s being accompanied by higher wages, which could be a problem. It’s another sign of some sectors not being able to find employees. The fact that there’s some sectors that can’t find workers could mean a lot of people aren’t going back it could because of the extended unemployment benefits especially in the services sector.

“The market is reacting positively because yields are going down.

“We’re seeing gold going through the roof right now. Yields going down and higher yields have had a negative effect on the Nasdaq. With the 10-year (Treasury yield) going to 1.51%, that’s a hefty drop. The dollar sinking and people are rethinking the Nasdaq.”

SAMEER SAMANA, SENIOR GLOBAL MARKET STRATEGIST, WELLS FARGO INVESTMENT INSTITUTE, ST LOUIS

“Job growth came in well below expectations, and below the 3- and 6-month averages, showing that the labor market recovery may be uneven at times.”

“Still, it was positive and the internals (hours worked, the participation rates, and wage growth all were better than expected) suggest things continue to improve.”

“We would not read too much into any one jobs report and continue to think the labor market remains on track and will be more than enough to underpin consumer confidence and consumption.”

“We also think the investing backdrop remains positive and investors should favor stocks over bonds, and cyclicals/growth over defensives.”

GUY LEBAS, CHIEF FIXED INCOME STRATEGIST, JANNEY CAPITAL MANAGEMENT, PHILADELPHIA

“We had a knee-jerk reaction (in Treasuries), a pretty sizeable rally. The 10-year was up about three-quarters of a point. We faded a chunk of that rally.”

“I suspect we have probably a little bit more left in the downdraft in yields from their recent peak back in March. But the intermediate to longer-term trajectory is higher.”

“Hiring in the U.S. economy was stronger than the seasonally adjusted numbers suggest because in large part seasonally adjustment factors have been messed up by the sharp job declines during the pandemic and the sharp rebound thereafter.”