How are we thinking about the April 2025 U.S. jobs report?
U.S. nonfarm payrolls data for April looked surprisingly steady. Jobs grew by +177k, down slightly from +185k last month but well above consensus of +138k.
- Overall, we think the April jobs report is a further indication that the U.S. economy, excluding tariffs, has been resilient. This dovetails more in-line with the sturdy view of the economy that our models had been indicating coming into this year (a strong 2.9% GDP growth prior to tariffs supported by Fed cuts, hardy credit conditions, and lower energy prices, among other factors).
- Positives in this report include a rising participation rate to 62.6%, a stable unemployment rate of 4.2%, average hourly earnings growth of 3.8%, and an improving work week of 34.3 hours.
- At the sector level, there were some other notable positives. For example, Education/Healthcare rose 70,000, Construction was up 11,000, and Travel/Leisure increased by 24,000. On the cautious side, Manufacturing declined 1k, Retail Trade fell 2k, and Government was ‘just’ 10k, compared to around 50k or so under the prior administration. Also notable is that Transportation & Warehousing surged by +29k in April vs. just +3k in March – but we suspect the resilience in this sector proves transitory once China imports start slowing in May and beyond.
What does this mean for markets?
At its core, we reiterate that we entered ‘Liberation Day’ with a strong economy (remember our GDP model was flashing 2.9% ex-tariffs), and fortunately, some of these positive underlying trends were sustainable. For example, the consistent drivers of Education/Healthcare have remained resilient under both Biden and Trump; all told, 42% of jobs came from this one area of the economy this month, while prior months were just a little less robust. Looking ahead, however, we think services is still a cleaner story than goods, especially during tariff negotiations.
From a structural basis, we see a weaker dollar as the most effective policy to increase U.S. competitiveness, and as such, we think investors should have exposure in the U.S. that benefits from this policy. Second, we continue to want to make our own luck, including more operational improvement stories in PE, more growth Infra that is less correlated to GDP, and more Credit that benefits from being higher up in the capital structure or takes advantage of the notable dispersions we are seeing in this market.
From a thematic perspective, we favor the Security of Everything, Capital Heavy to Capital Light, Productivity, and Collateral-Based Cash Flows. Overall, we view ‘Liberation Day’ as a catalyst for building resiliency in global capital flows and rethinking traditional asset allocation the same way that COVID was a catalyst for supply chain diversification in the multinational sector. Finally, we think the current administration now better understands the potentially toxic mix for the capital markets of a weaker dollar, falling Equities, and rising bond yields, and as such, we think policy considerations to prevent this left fat tail are now in place, which is positive for risk premiums. The offset is that Credit and Equity valuations are also now capped on the upside, given the uncertainty linked to DeepSeek’s competitive threat to global tech spending as well as fluctuating tariff policies in the U.S.
