April Payrolls: Resilient For Now
April payrolls growth was solid, and the unemployment rate was unchanged despite a declining job-finding rate. Wage growth eased but still runs above trend.
Today’s release of the April Employment Situation report showed a solid pace of payrolls growth, and a stable unemployment rate the job-finding rate declined notably. Hourly wage growth eased but remains higher than the 2% inflation pace - similar to what we have seen in previous reports. Payrolls growth trends continue to lag compared to a still elevated breakeven pace, although the latter should come down later in the year as population growth slows.
Key takeaways:
Payrolls growth was solid in April, but near-term trends continue to fall short of the breakeven pace needed to keep the unemployment rate constant at current levels based on higher population projections.
The unemployment rate remained unchanged to 4.2% as the labor force participation rate increased to 62.6%.
The job-finding rate declined over the month to 42% with smoothed trends around 45%. The unemployment rate consistent with recent job-separation and job-finding rates increased and smoothed trends suggest that in the near term the unemployment rate will likely increase to around 4.3%.
Wage growth based on composition-adjusted average hourly earnings eased but remain at paces inconsistent with the 2% inflation target.
The Fed is confronted with a very uncertain outlook owing to the Trump Administration’s tariff policies that have increased the downside risk to the labor market, but also likely will result in persistently more elevated inflation. Based on today’s April job report, the Fed will remain on hold for at least the first half of the year.
April Jobs Growth: Unexpectedly Solid
The April jobs report released today indicated that payrolls in the establishment survey grew more than the consensus expectation as they were up by 177,000 persons in April, compared to a 185,000 increase in the preceding month (which was revised down from 228,000 initially). Payrolls growth for February and March combined were revised down by 58,000 persons.
The unemployment rate remained unchanged at 4.2% in April. In three-digit terms the unemployment rate increased slightly over the month: from 4.152% in March to 4.187%. Household employment grew in April by 436,000 after increasing 201,000 persons in March (chart above). Given the historical patterns in the chart above, this will likely slow in future reports. Finally, the labor force participation rate ticked up by 10bps for the second consecutive month to 62.6%.
Underlying Labor Market Trends
The chart above shows both the monthly and three-month moving averages of payrolls changes from the establishment survey since February 2022. The smoothed trend in payrolls growth accelerated throughout Q4 but has been easing since January. It’s useful to compare this smoothed trend with the estimate of the breakeven payrolls growth pace that keeps the unemployment rate constant in a given month conditional on the BLS’ population growth estimates as well as the labor force participation rate in that month. This month this breakeven pace hit 110,000 persons, close to where it had been throughout 2024 (purple line in the above chart). Compared to the three-month average payrolls growth rate this would suggest that the labor market is still creating jobs at a healthy pace.
But, while in January the BLS adjusted its population level for upgraded net immigration projections, the pre-2025 population remained uncorrected and remain well behind pre-2025 population from other institutions like the CBO. The CBO estimates that the working population grew 1.4% in both 2023 and 2024, with the pace to slow down in 2025 to 0.9%. Based on these projections I’ve included in the above chart an adjusted breakeven payrolls growth pace for a constant unemployment rate that adjusts the BLS’ population projections for 2020-2025 to bring them line with the CBO’s 2020-2025 noninstitutionalized population estimates (gray line in the chart above).
The CBO-implied breakeven pace needed to keep the unemployment rate at 4.2% is around 200,000 persons in April, down from about 208,000 in March as well as its 224,000 persons peak in December. Comparing this to the three-month average payrolls growth rate (orange vs. gray lines in the above chart) suggests that current job growth trends cannot keep up with this more realistic breakeven pace, with the monthly increase (177,000) also remaining below it. So, there’s likely elevated upside risks to the unemployment rate over the near-term.
Additional details about the underlying strength of the labor market can be inferred from the household employment survey. Following Shimer (AER, 2005) and Shimer (RED, 2012), we can use data on total unemployed and employed persons as well as the number of people that are unemployed for less than 5 weeks to estimate:
Job-finding rate: the probability an unemployed person in month t will find a job or leaves the labor force. This is calculated assuming that total unemployment in month t+1 equals month t unemployment plus the number of people unemployed for less than 5 weeks in month t+1.1
Job-exit rate: the likelihood an employed person in month t will exit its job either due to layoffs, quits or retirement, which depends on data on the job-finding rate, unemployment and labor force.2
The chart above shows a plot for the estimated job-exit rate. This job-exit rate has been relatively stable over the past three years, with a moderate downward shift in the first half of 2023 that stabilized between June and October but then rose again until last summer. Note, however, that the y-axis in the chart above also makes clear that the variability in the separation rate has been really modest.
The job-exit rate eased between January and February but then increased again between February and March (chart above). In April, however, it declined again and on a three-month average-basis (orange line in the above chart) the likelihood of job-exits has been moving down since February. This likely reflects the continued historically low lay-off rates as also in the JOLTS report.
In 2023 the job-finding rate declined a lot after Q1 2023 (chart above) and this decline generally continued in 2024 to about 42% for October going into November. In 2025, the job-findings rate initially remained relatively range-bound, but dropped noticeably in March going into April. In April the overall number of unemployed persons grew went up whereas the number of newly unemployed persons (less than 5 weeks in duration) declined: +85,000 vs. -177,000. Given that the job-finding rate is essentially driven by the relative differential of increases in overall unemployment and newly unemployment, the likelihood to exit unemployment between March and April fell a lot, to about 42% (chart above). Three- and six-month averaged job-finding rates for March into April remain slightly higher at around 45%.
As in Shimer (AER, 2005) we can combine the above discussed job-exit and job-finding rates to calculate a flow-consistent unemployment rate and the chart above plots both the corresponding monthly rate and the three-month average of this rate. The (three-month average) flow-consistent unemployment rate is the unemployment rate that prevails when the job-exit and job-finding rates remain constant at their current (three-month average) levels. Deviations compared to the official unemployment rate should dissipate over time and frequently predict future changes in the official rate.
The chart above shows that the drop in the job-finding rate led to an increase in the monthly flow-consistent unemployment rate for March into April. Given the choppiness in this measure, it’s probably more useful to look at three-month averages. Throughout most of 2024 the flow-consistent unemployment rate on a three-month average basis had been outpacing the official unemployment rate, which lead to a rise in the latter (solid blue and orange lines in the chart above). This was largely driven by a deterioration in the job finding rate over that period, as labor demand weakened.
More recently, the three-month averages of headline and flow-consistent unemployment rates had been broadly similar between September and February (solid blue and orange lines in the chart above) suggesting stabilization of the unemployment rate around 4.2%. Since March, however, the three-month averaged flow-consistent unemployment rate has been overshooting its headline counterpart by about 10bps, which would suggest a persistent shift up in the unemployment rate to around 4.3% is forthcoming.
Both smoothed payrolls growth trends and the job flows data show signs that the labor market is slowing, with the unemployment rate likely to move higher than 4.2%.
Wage Growth Pace Eased
Average hourly earnings of all private sector employees grew 0.2% month/month in April, down from (an unrevised) 0.3% in March, and in year/year terms it also eased from (an unrevised) 4.5% in March to 3.7%. For production and non-supervisory workers, hourly earnings growth accelerated, to 0.3% month/month in April from (an unrevised) 0.2% in the preceding month but on a year/year basis growth slowed to 4% from (an unrevised) 4.4% in March.
The wage data from the jobs report are notoriously noisy, given that they are revised often and do not correct for the sectoral and skills composition of jobs growth over the month. There are better quality wage data available, such as the Atlanta Fed Wage Growth Tracker and the Employment Cost Index, but the Atlanta Fed does construct a rudimentary composition correction for average hourly earnings from the jobs report, which can be found here.
When applying the Atlanta Fed composition correction on the monthly average hourly earnings for April, the correction lowered the official growth rate for all private workers from 0.2% to 0.1%. For production & non-supervisory workers, however, this correction essentially left the official 0.3% pace for April unaffected.
From the chart above one can observe that the three- and six-month wage growth rates have been running at or above 4% between early 2024 and February 2025. Since then, however, three-, six- and 12-month wage growth rates have been easing to rates just below 4%.
I can combine labor productivity and labor share trend estimates with the 2% inflation target, along the lines I have done in my “Wages and Inflation Expectations” notes and incorporating the 2024 Q4 update of productivity data to get a medium-run annual wage growth rate consistent with 2% inflation.
Additionally, instead of the 2% target one can use my “Main Street” year-ahead inflation expectations proxy, i.e., the common trend across survey-based near-term inflation expectations from firm and consumer surveys. After incorporating April data for the Conference Board, University of Michigan and Atlanta Fed surveys this estimate suggests "Main Street" inflation expectations in the chart above rose from 2.4% y/y PCE in Q4 to 3.3% in March. April data imply a jump to 4.2%—similar to the acceleration we saw in Q2–Q3 2021. This reinforces that firms and households remain uneasy about near-term inflation amidst persistent policy uncertainty.
Compared to both the composition-adjusted AHE data for production and non-supervisory workers for February and the unsmoothed Atlanta Fed wage tracker into January, annual wage growth rates still outpace the 2.74% pace consistent with 2% PCE inflation in the medium term (green line in the above chart). Current wage growth, however, does fall short of the wage growth pace consistent with 4.2% PCE inflation implied by “Main Street” near-term inflation expectations for April (blue line in the chart above). So, current labor market dynamics are supportive of some but certainly not all of the expected inflation acceleration that’s in the pipeline.
After the conclusion of the March FOMC meeting the Fed clearly signaled that there should not be a lot of policy easing in the pipeline given stalling progress on inflation. Rapidly rising inflation expectations seem to validate such a cautious approach to further rate cuts. Today’s April jobs report showed that “under the hood” there are tentative signs of some slowing in the labor market. Furthermore, while wage growth still runs at rates well above the pace consistent with 2% inflation over the medium-term, it certainly is not high enough to structurally support all of the expected inflation acceleration that’s forthcoming. So, given ongoing uncertainty regarding the execution of tariff hikes the Fed is likely to stay on hold for, at least, the first half of the year.
Given this calculation, the job-finding rate will run up to March utilizing data on (short-term) unemployment for April.
As the calculation of the job-separation rate depends also on (short-term) unemployment for April, we cannot go beyond March.