Hey everyone! Welcome back to our business and economy deep-dive. If you have been keeping an eye on the news lately, you know that there is a lot going on in the world. Between global tensions, shifting gas prices, and everyday inflation, it can feel like a financial rollercoaster.
But today, we have some genuinely surprising news to talk about. The latest jobs data for April just dropped, and it has practically everyone on Wall Street—and Main Street—doing a double-take.
For the second month in a row, the United States job data has beaten expectations. The US economy managed to create 115,000 jobs in April.
If you are wondering why that is a big deal, or how this impacts your wallet, you are in the right place. Let’s break down exactly what the US Bureau of Labor Statistics (BLS) just told us, why businesses are still hiring, and what all of this means for the future of interest rates in a simple, conversational way.
The Big Surprise: 115,000 New Jobs
Let’s start with the headline number. In April, US employers added 115,000 jobs to the economy.
Why is this making headlines? Because this increase was much stronger than expected. In fact, that total is almost twice as much as economic experts had forecast. Economists spend all month looking at hiring trends, corporate profits, and consumer spending to guess how many jobs will be created. They expected a very modest number for April, given the heavy headwinds our economy is currently facing. But the job market simply brushed those predictions aside.
Alongside this impressive job growth, the unemployment rate remained perfectly unchanged at 4.3%.
An unemployment rate of 4.3% is generally considered quite healthy. It means that the vast majority of Americans who want to work are able to find work. When the unemployment rate holds steady while we are adding over a hundred thousand jobs, it tells us that businesses are confident enough to keep their “We’re Hiring” signs firmly in the window.
But to really understand why this 115,000 number is such a shocker, we have to look at the global backdrop.
The Elephant in the Room: The Global Energy Shock
You can’t talk about the April economy without talking about what is happening on the global stage. As you likely know, the economic fallout from the US-Israel war in Iran has been severe.
Specifically, the closure of the Strait of Hormuz in response to US and Israeli strikes on Iran has sent shockwaves through the global supply chain. If you aren’t familiar with it, the Strait of Hormuz is one of the most critical maritime chokepoints in the entire world. A massive percentage of the world’s oil flows through that narrow body of water.
When a chokepoint like that closes, we experience what economists call a global energy shock.
- Oil supplies are bottlenecked.
- Global markets panic.
- The cost of a barrel of crude oil skyrockets.
And where do we feel that the most? Right at the local gas station. This geopolitical conflict has directly pushed up the price of gasoline for everyday American consumers.
Usually, when gas prices spike, a chain reaction happens:
- Consumers spend more money on gas to get to work.
- Because they are spending more on gas, they spend less on eating out, shopping, and entertainment.
- Businesses see a drop in sales and decide to freeze hiring to save money.
This is exactly why economists predicted a terrible jobs report for April. They assumed the energy shock would terrify businesses into pausing their hiring. Yet, completely defying those expectations, businesses kept hiring anyway. The American consumer and American businesses are proving to be incredibly resilient.
Riding the Rollercoaster: Making Sense of February and March
To really appreciate April’s numbers, we have to zoom out and look at the whole year so far. The truth is, the job market has been a bit of a rollercoaster lately. We have seen months of massive fluctuations in job numbers.
Let’s look at the revised data from the US Bureau of Labor Statistics for the late winter and early spring:
- February: Non-farm payrolls actually fell by 156,000 jobs. It was a harsh month that had lots of people worried about a sudden recession.
- March: The economy bounced back aggressively, adding a whopping 185,000 jobs.
Note: You might hear the term “non-farm payrolls” a lot in the news. It’s just a fancy economic term that counts all the jobs in the economy minus farm workers, private household employees, and non-profit organization employees. It’s the standard metric we use to judge the health of the corporate job market.
Because February was so low and March was so high, economists like to look at averages to find the real trend. Revisions to the March and February figures mean that, on average, the number of jobs rose by 48,000 per month over the last three months.
The “Breakeven Rate”: What Does 48,000 Mean?
Is an average of 48,000 new jobs a month good, bad, or just okay?
According to economists, this average is right in line with something called the breakeven rate.
Think of the US job market like a giant swimming pool. Every month, new water is added to the pool. This “new water” represents new people entering the workforce—recent college graduates, high school students turning 18, or immigrants moving to the country.
If the pool doesn’t expand, the water will overflow (which, in economic terms, means the unemployment rate goes up because there aren’t enough jobs for the new people).
The “breakeven rate” is the exact number of new jobs the economy needs to create just to absorb all those new people entering the workforce, keeping the unemployment rate perfectly steady. Right now, creating about 48,000 to 50,000 jobs a month is our breakeven point.
Because we averaged exactly 48,000 over the last three months, our unemployment rate has stayed remarkably steady at 4.3%. The pool is expanding at the exact same rate the water is pouring in!
Enter the Federal Reserve: What This Means for Interest Rates
So, businesses are hiring, the unemployment rate is steady, but gas prices are high. What happens next? This is where the Federal Reserve (often just called “The Fed”) steps into the spotlight.
The Federal Reserve is the central banking system of the United States. They have a dual mandate: they want to maximize employment, but they also want to keep inflation stable (usually aiming for about 2% inflation per year).
Right now, inflation is a major concern, largely because of that global energy shock and the high price of gasoline we talked about earlier. When gas prices go up, it costs more to transport goods, which makes groceries, clothes, and electronics more expensive.
To fight inflation, the Fed uses its primary weapon: Interest Rates.
- When they raise interest rates, borrowing money becomes expensive. People buy fewer houses and cars, businesses expand less, and the economy cools down, which brings prices down.
- When they lower interest rates, borrowing is cheap. People spend more, businesses hire more, and the economy heats up.
April’s solid employment figures essentially painted a picture for the Federal Reserve. Because the job market is still surprisingly strong—adding 115,000 jobs and holding unemployment at 4.3%—the Fed doesn’t need to worry about the economy crashing into a recession right now. The economy is strong enough to stand on its own two feet.
However, because that energy shock is threatening to push inflation higher, the Fed is walking a tightrope.
The expectation right now is that the Federal Reserve will keep interest rates on hold. They likely won’t lower rates, because lowering rates could cause the already-rising inflation to spiral out of control. But they also might not raise rates, because the three-month job average of 48,000 is steady, not booming out of control. Keeping interest rates exactly where they are allows the Fed to “keep a lid on inflation” while watching how the geopolitical situation in Iran and the Strait of Hormuz plays out.
What Does All This Mean for You?
We’ve talked a lot about billions of barrels of oil, hundreds of thousands of jobs, and big central banks. But how does this translate to your daily life? Here are the key takeaways for the everyday consumer and worker:
- Your Job is Likely Secure: If you are currently employed, a 4.3% unemployment rate and steady job growth mean that companies are largely in retention mode. Mass layoffs are not the overarching trend right now outside of a few specific sectors.
- Finding a Job is Still Possible, but Competitive: If you are looking for work, companies are still hiring (115,000 new jobs proves that!). However, we aren’t in the wild hiring frenzy of a few years ago. You will need to be competitive and patient in your job hunt.
- Borrowing Will Stay Expensive for a While: If you are looking to buy a house, finance a car, or take out a personal loan, do not expect interest rates to magically drop anytime soon. Because the job market is holding up, the Fed has no urgent reason to slash rates. Factor current interest rates into your budget for the foreseeable future.
- Budget for the Pump: The situation in the Strait of Hormuz is ongoing. The energy shock is real, and gas prices are likely going to remain a pain point. It’s a good time to look at your monthly budget, carpool if you can, or look into fuel-saving habits.
