The American labor market unexpectedly turned out to be weaker than previously thought: revised data showed that from April 2024 to March 2025, the U.S. economy created 911,000 fewer jobs than believed. This is the largest adjustment since the early 2000s. Against the backdrop of such news, Wall Street stood between anxiety and optimism: on one hand - the risks of recession, on the other - hope for a quick reduction in Federal Reserve interest rates.
Let's try, as usual, to break down the news into key theses and analyze.
Thesis 1: Large-scale adjustment in employment
Factors influencing dynamics:
Weakness in the services sectors: particularly leisure & hospitality (-176k), business services (-158k), and retail (-126k).
The decline in consumer activity has been deeper than anticipated.
Errors in statistical models adjusted through comparison of independent employment counting methods.
Conclusions: The labor market cooled much earlier and stronger than previously thought. This weakens the 'hawkish' arguments at the Fed and strengthens the position of rate-cut advocates.
Thesis 2: Market reactions
Factors influencing dynamics:
S&P 500 and Nasdaq remain near historical highs: investors are betting on imminent cheapening of money.
Dow Jones gained over 200 points, signaling confidence in 'insurance' from the Fed.
Leading tech giants are behaving in different directions: Meta and Alphabet are up, while Apple is down amid skepticism towards the new iPhone 17.
Conclusions: Markets prefer to see bad data as 'good news' — a signal for policy easing. But the euphoria is fragile: the balance between a weak economy and monetary stimulus is very thin.
Thesis 3: Bonds and yields
Factors influencing dynamics:
The yield on 10-year treasuries holds at 4.07%, bouncing back from a five-month low.
Investors are pricing in 3 rate cuts by the end of the year but fear that rising inflation in August will limit the Fed.
Paradox: a weak labor market pushes for stimulus, but inflation keeps the regulator's hands tied.
Conclusions: The debt market signals: rates will be cut, but cautiously — inflation is still in play.
Thesis 4: The dollar and geopolitics
Factors influencing dynamics:
The dollar index fluctuates around 97.5, remaining near seven-week lows.
Weak employment data undermines the dollar's position, but spikes in geopolitical tension (reports of an attack in Qatar) increase demand for the 'safe haven' currency.
Conclusions: The US currency is stuck between two forces: a weak economy and its status as a global 'refuge.'
Thesis 5: Microeconomic background
Factors influencing dynamics:
Individual companies are showing vulnerability: Nike is at a four-week low, Apple is falling after the presentation.
Small businesses are demonstrating cautious optimism: the NFIB index is at a seven-month high, but staffing issues and rising costs persist.
Conclusions: The real economy is not as robust as stock indices. Individual companies and small entrepreneurs continue to feel pressure.
Comprehensive analysis and conclusions
The situation resembles balancing on a tightrope: the economy is clearly losing momentum, but markets remain buoyed by faith in imminent 'insurance' from the Fed. The main risk is that rate cuts will not be able to compensate for the slowdown in employment against still high inflation.
If the inflation reports (CPI and PPI) this week show a slowdown in prices, the Fed can confidently launch a rate-cutting cycle. But if inflation 'stubbornly' refuses to fall, the central bank will have to choose between economic cooling and the risk of price acceleration.
The US economy has entered a new phase: the labor market is no longer a 'concrete argument' for high rates. Investors are already celebrating imminent easing from the Fed, but real inflation data could spoil the party sharply. In the coming week, CPI and PPI will be the 'trigger' that determines whether the labor market's weakness turns into a long-term trend or merely a push for a new Wall Street rally.