Jobs report sends conflicting signals

May 8, 2026

Payroll employment rose by 115,000 jobs in April, after being revised up to 185,00 in March. The drop in February was reduced to a drop of 156,000, 23,000 less than reported the previous month.  Public sector payrolls shed 8,000 with a loss in federal workers more than offsetting a small increase in hires at the state and local levels. Federal employment is now down 348,000 jobs from its peak in October 2024. Staffing shortages have become acute at some federal agencies; older workers took buyouts, early retirement and quit in the wake of last year’s cuts.

Private sector payrolls added 123,000 jobs. The largest gains remained concentrated in healthcare and social assistance, which added 53,900 jobs during the month.  Aging demographics are supporting demand for healthcare, but a lapse in the ranks of those covered by insurance will likely boost emergency room visits. 

Covid-era subsidies for the Affordable Care Act have lapsed, while many states have placed hurdles on Medicaid coverage. More cuts and the higher cost of new H-1B visas will hit nonprofit rural and poor urban hospitals hardest; they rely more on foreign-born doctors and nurses to fill vacancies.

Transportation and warehousing added 30,300 jobs, mostly couriers and messengers. People stopped going out and pivoted online as prices at the gas pump rose. Delivery fees are lagging those hikes.  

Retail trade added 21,800 jobs. Gains were concentrated in warehouse clubs, supercenters and building material and garden supplies. Some of that reflects a later-than- usual Easter (April 5).

Leisure and hospitality continued adding jobs for the second consecutive month, with a gain of 14,000. However, gains were concentrated in food services instead of accommodation, reflecting the late Easter. Performing arts and spectator sports also did well.

Professional and business services added jobs for the fourth consecutive month, while information continued to shed jobs. The latter includes the tech sector, which is shedding jobs in response to AI investments. Some of that reflects the need for the cash to fund massive data center buildouts. The tech sector has shed jobs for 16 straight months.

Construction hiring added 9,000 jobs, with gains concentrated among nonresidential specialty contractors. They are the ones doing the data center buildouts.  

Average hourly earnings rose 0.2% in April, the same as March. That translated to a 3.6% gain from a year ago, up slightly from the downwardly revised 3.4% pace of March. Hours worked edged back up to 34.3, one tenth higher than last month. That will boost weekly earnings.

Separately, the unemployment rate held at 4.3% in April, the same as in March. Participation in the labor force continued to drop. Men over the age of 55 and prime age women – those 25 to 54 – accounted for the losses. The eldercare market is in crisis. Men make up almost half of all unpaid elder care providers.

The household survey came in much weaker for employment than the establishment survey. It showed a loss of 226,000 workers in April. Those who were forced to accept part- instead of full-time work rose by 445,0000. 

The establishment survey is more susceptible to revisions, due to the inability to capture the loss in small and midsize businesses due to the downward pressure on profit margins that tariffs and the war exert. Preliminary census data suggest that we will see more downward revisions to payrolls for 2025 early next year.  

The U6, which is a more comprehensive measure of unemployment rose to 8.2%, the highest since December 2025. That is two full percentage points above what we saw in 2019. The only silver lining was that the mean and median durations of unemployment edged lower but remain elevated. 

The number of people leaving jobs fell, while those entering or reentering the labor market and unable to find a job rose. That reflects the ongoing anxiety that workers are expressing in consumer attitude surveys. 

The ranks of those out due to childcare problems was the lowest for April in a decade. Prime age women with a bachelor’s degree or higher and small children at home have been dropping out of the labor force entirely in response to the high costs of childcare and return-to-office mandates. 

Implications for the Fed 

Payroll gains with a steady unemployment rate will harden the resolve of hawks on the Fed who are worried that inflation is sticking. The energy crisis is adding to those concerns. Three Federal Reserve presidents dissented in favor of dropping the language favoring an  easing bias in the Fed’s statement for April. 

Chairman Jay Powell said the ranks of those looking for optionality to raise or cut rate rose. The Fed is following the lead of the European Central Bank and edging closer to a hike in rates.

We now expect two rate hikes by the Fed in response to stickier inflation and additional inflation due to the ongoing closure of the Strait of Hormuz. The Fed has failed to meet its inflation target for nearly five years, which is shredding its credibility. Powell’s replacement, Kevin Warsh, will be tested by the bond market on his inflation-fighting resolve. The first rate hike is not likely at his first meeting in June but could occur prior to the end of summer.