Reacceleration

Bottom Line

The US labor market continues to show encouraging signs of reacceleration in 2026. Today, the US Bureau of Labor Statistics reported that nonfarm payrolls rose by 115,000 jobs in April, lifting the year‑to‑date average to 76,000 jobs per month, a dramatic improvement from last year’s anemic 15,000 pace. Taken together, recent labor‑market and broader macroeconomic data suggest that growth remains on a solid footing, despite persistent concerns about AI‑driven job displacement.

April payrolls surprise to the upside
April delivered another upside surprise in the labor market. Payroll gains of 115,000 were well above consensus expectations for a 65,000 increase and exceeded Federated Hermes’ estimate of 91,000. Private payrolls were particularly strong, rising by 123,000 jobs, compared with a consensus forecast of 75,000.

Momentum was further reinforced by upward revisions to prior data. March job growth was revised higher, from 178,000 to 185,000, underscoring a labor market that continues to outperform expectations even as broader narratives warn of impending challenges.

Labor strength broadly consistent across indicators
The strength seen in April payrolls is broadly consistent with other key labor‑market indicators and recent macroeconomic releases. Jobless claims, private payroll surveys, layoff data, and productivity trends all continue to point toward resilience rather than retrenchment. Meanwhile, consumer-related data, including retail sales, GDP growth, and new home sales, remain constructive, reinforcing the view that the expansion is intact.

Several indicators had already set the stage for a robust payroll report:

• Initial jobless claims declined to a multi‑decade low of 190,000 in the week ending April 24. The four‑week moving average fell to 203,250, its lowest level in more than two years, signaling limited labor market stress.
• The ADP private payroll survey showed employment rising by a stronger‑than‑expected 109,000 jobs in April, accelerating from 61,000 in March. Wage growth continues to normalize where job switchers saw pay rise 6.6% year over year, well below the cycle peak of 16.1% in April 2022, while job stayers earned a more moderate 4.4%, down from 7.8% at the 2022 peak.
• Challenger, Gray & Christmas said firms announced 83,387 job cuts in April, up 25% from March but -21% lower than a year ago. Importantly, low claims data suggest displaced workers are finding new jobs relatively quickly.
• The JOLTS report continues to describe a “low‑fire, low‑hire” labor market rather than a deteriorating one. March job openings edged down to 6.86 million from 6.92 million in February but remain above December 2025’s five‑year low of 6.55 million. The quits rate rebounded modestly from 1.9% to 2.0%, in line with late‑2025 norms and consistent with stabilizing worker confidence.

Household survey: mixed signals, limited stress
The household survey was somewhat softer. Household employment declined by 226,000 in April, extending a negative trend that began earlier this year. Nevertheless, the headline unemployment rate (U‑3) held steady at 4.3%, matching its multi‑month low. For context, the Federal Reserve projects unemployment to end 2026 at 4.4%, placing April’s reading squarely within expectations.

Broader labor underutilization edged higher, with the U‑6 labor impairment rate rising to 8.2% from 8.0% in March, compared with a cycle low of 6.6% in December 2022. The labor force participation rate slipped to 61.8%, a five‑year low, from 61.9% in February and down from the recent high of 62.5% in November 2025. While these metrics bear monitoring, they do not yet signal a material deterioration in labor conditions.

Implications for the Federal Reserve
For policymakers, April’s employment report is likely to ease recent pressure to resume tightening in response to inflation concerns. The combination of steady job growth, moderating wage gains, and improved productivity should allow Chair‑elect Kevin Warsh to maintain the current policy pause through the summer.

That said, risks remain on the horizon. Ongoing geopolitical tensions, including the Iran conflict, continue to influence energy markets, with West Texas Intermediate, or WTI, crude hovering just below $100 per barrel. Gasoline prices have lagged but are now rising rapidly, up 52% nationally since the start of the war, from $2.98 per gallon to over $4.50. Energy‑related inflation remains a key variable for the Fed, but for now, the wage data appears to be giving policymakers valuable breathing room.

Takeaway
Despite widespread anxiety about technological disruption and late‑cycle dynamics, the US labor market continues to demonstrate a reacceleration. April’s payroll report reinforces a narrative of steady, sustainable growth.

Read more about our views and positioning at Capital Markets.