A Stabilizing Jobs Market Is Weathering Inflation Pressures, for Now

Key Takeaways

• The economy added 115,000 jobs in April, above consensus forecasts and signaling economic resilience amid rising energy costs.
• The surging stock market has fueled some analysts’ optimism about the overall health of the US economy, while others worry that underlying weakness will seep into future jobs data.
• Given April’s strong hiring figures, with inflation expected to remain hot, analysts expect the Fed to continue holding interest rates.

The US economy showed stronger-than-expected hiring gains in April, according to the latest Bureau of Labor Statistics report, signaling that the labor market has remained resilient despite growing concerns around the economic fallout of the Iran War and surging oil prices.

The economy added 115,000 jobs, according to the BLS data. That’s down from March’s upward-revised increase of 185,000, but above analyst predictions of 70,000. The unemployment rate remained unchanged at 4.3% in April, in line with economists’ forecasts.

April’s hiring figures prove the labor market has continued to fare relatively well against a backdrop of rising prices and tight monetary policy, economists say. “The job market has ceased deteriorating for now, but it would be a stretch to say that it’s improving,” says Morningstar chief US economist Preston Caldwell.

The healthcare sector again led the hiring charge, adding 37,000 jobs in April and averaging a monthly gain of 32,000 over the last 12 months. Employment in the retail and transportation and warehousing sectors also edged up.

Retail hiring gains surprised José Torres, senior economist at Interactive Brokers, who says recent earnings calls from consumer-facing companies flashed warning signs. Despite solid BLS data, he expects weak earnings and rising April prices to coincide. The April Consumer Price Index report, which drops May 12, is expected to show annual inflation at 3.7%, up from 3.3% in April, according to FactSet consensus estimates.

“When you’re essentially tolerating this kind of inflation, you are subduing the risks to capital markets,” Torres says. “And you’re not putting any pressure on the labor market, and prices may become even more unanchored, and that’s what we’re seeing with inflation expectations.”

Labor Market Resilient Amid Stock Market Surge

April’s hiring strides demonstrate economic resiliency, which is an optimistic sign when coupled with the recent strength of the stock market, according to Chris Zaccarelli, chief investment officer at Northlight Asset Management. Since April 7, the Morningstar US Market Index has increased by 10.79%, while it tumbled 4.4% in the first month of the Iran war.

“The economy is so much better than what the doom crew has been saying,” Zaccarelli says. “There are a lot of headwinds—higher oil prices, sticky inflation, and higher-for-longer interest rates—and yet the labor market is adding jobs, GDP is growing, and corporate profits are expanding at a rapid pace.”

However, Interactive’s Torres says some recent earnings calls heighten his concern that labor market momentum will slow. He cites Honeywell and McDonald’s, which both reported near-flat sales last quarter, as well as airlines like United and Delta, which will likely see profits squeezed by higher fuel costs next quarter.

Torres also expects tech sector layoffs tied to heavy AI spending to weigh on employment data. Microsoft recently announced $190 billion in capital expenditures over the next three quarters, along with a voluntary early retirement program. Amazon has made headcount reductions amid expanding operating margins. “I’m worried that weakness can start to manifest in the employment market overall,” he says.

Combine that with high interest rates, and job growth will continue to face headwinds. “It’s about labor supply being curtailed by immigration restriction and labor demand being weakened by high interest rates,” Torres says. “Rate-sensitive sectors don’t want to expand in that environment.”

While broad employment numbers remain stable, Morningstar’s Caldwell says April’s gains in retail, transportation, and manufacturing may also diminish if consumer goods spending continues to decelerate.

Jobs Data Likely to Keep Fed on the Sidelines for Now

Given April’s steady job gains, Morningstar’s Caldwell expects the Fed to keep its focus on combatting inflation, which has remained significantly above its 2% target. “The Fed won’t glean a strong signal from today’s labor market data, but the prior case for looser monetary policy based on labor market risks has steadily dwindled, based on recent months’ data.”

Currently, bond futures traders see a 94.8% chance that the Fed will hold interest rates in their current range of 3.50%-3.75% at its June meeting, according to the CME FedWatch Tool. That would mark the sixth consecutive meeting of unchanged monetary policy.

Economists aren’t completely turning their heads on a rate cut in 2026, though. Looking ahead to the Fed’s end-of-year meeting in December 2026, 12.8% of market participants predict a quarter-point cut, while 70.5% anticipate rates will stay unchanged.

With Kevin Warsh set to take over as chair at the next meeting, Torres says the central bank could take on a more aggressive approach to inflation. “It’s going to be interesting when the new Fed chair, who’s been historically hawkish, gets to match up with a president who wants lower borrowing costs,” he says. “We’ll see how this all coincides with a market that wants to run higher.”