EB SECURITIES: Non-farm payrolls temporarily stabilize, easing market recession concerns

According to the Zhitong Finance APP, Everbright Securities released a research report stating that despite the pressure on the U.S. economy, better-than-expected non-farm data has alleviated market concerns about a U.S. economic recession, and the Federal Reserve may maintain more patience. From the employment data, although there may be a risk of weakening in subsequent employment data, the unemployment rate has not increased for the April data itself, and the addition of 177,000 jobs is not bad. In the short term, the Federal Reserve may continue to wait and see, still waiting for more signals of economic weakening.

The following are the core views of the research report

Event:

On May 2, 2025, the U.S. Department of Labor announced the non-farm data for April 2025: an increase of 177,000 non-farm jobs, expected 130,000, and the previous value revised from 228,000 to 185,000; the unemployment rate for April was 4.2%, expected 4.2%, previous value 4.2%; average hourly wage increased by 3.8% year-on-year, expected to increase by 3.9%, previous value increased by 3.8%.

Core View:

In April 2025, the U.S. added jobs fell back but was higher than market expectations. From a structural perspective, employment in retail and leisure hotel industries weakened under tariff disturbances, indicating pressure on the U.S. economy. However, the transportation and warehousing industry saw a significant rebound in new jobs in April, partially offsetting the impact of tariffs on employment data, possibly due to U.S. manufacturers rushing to hire before reciprocal tariffs took effect, with sustainability in question. Combined with the structure of this non-farm data and the revised previous values, pressure still exists in the U.S. job market.

Despite the pressure on the U.S. economy, better-than-expected non-farm data has alleviated market concerns about a U.S. economic recession, and the Federal Reserve may maintain more patience. From the employment data, although there may be a risk of weakening in subsequent employment data, the unemployment rate has not increased for the April data itself, and the addition of 177,000 jobs is not bad. In the short term, the Federal Reserve may continue to wait and see, still waiting for more signals of economic weakening.

New non-farm employment fell back, transportation and warehousing employment rebounded, while retail and leisure hotel employment weakened.

(1) Transportation and Warehousing: In April, the transportation and warehousing industry saw a significant rebound in new jobs, adding 29,000 jobs, significantly higher than March's 3,000 jobs, partially offsetting the impact of tariffs on employment data. (2) Retail and Leisure Hotel: New jobs were -2,000 and +24,000, significantly lower than the previous values of +22,000 and +38,000.

Labor participation rate rebounded, unemployment rate remained flat at previous value.

In April 2025, the labor participation rate recorded 62.6%, higher than the previous value of 62.5%, with an increase in labor participation among the middle-aged and elderly groups. In terms of unemployed population, the number of unemployed increased by 82,000 in April (previous value increased by 31,000), while the employed population also increased by 436,000 (previous value increased by 201,000), driving the April U3 unemployment rate (= number of unemployed / labor force) to stabilize at 4.2%. Additionally, the April U6 unemployment rate (=(total number of unemployed + number of part-time workers due to economic reasons) / labor force) recorded 7.8%, lower than the previous value of 7.9%, indicating improvement in the part-time job market.

From the perspective of interest rate cuts, despite the pressure on the U.S. economy, better-than-expected non-farm data has alleviated market concerns about a U.S. economic recession, and the Federal Reserve may maintain more patience. Looking ahead, from the employment data perspective, although there may be a risk of weakening in subsequent employment data, the unemployment rate has not increased, and the addition of 177,000 jobs in April is not bad. In the short term, the Federal Reserve may continue to maintain a wait-and-see approach, still waiting for more signals of economic weakening.

After the non-farm data was released, the 10-year Treasury yield rose by 8 basis points to 4.33%. The CME FedWatch tool shows that the market expects the earliest interest rate cut to occur in July 2025 by 25 basis points, with a probability of 55.2%. The second interest rate cut is expected in September, with a probability of 48.9%, totaling three rate cuts for the year.

Risk warning: U.S. economic downturn exceeds expectations; trade and geopolitical situations evolve beyond expectations