We expect nonfarm payrolls (NFP) in April decelerated to 75k in April close to the ytd average of 68k. Lead indicators for the labor market point to a modest acceleration in underlying employment trends, but in our view, this will be outweighed by negative payback after NFP overshot in March. With respect to the risks around our forecasts, there were upside risks last month due to the timing of the Easter holiday this year (April 5), the opposite applies for April. Case in point, over the four prior years when Easter fell between April 1 and April 5 (2021, 2018, 2015, 2010), payroll gains for the retail trade sector have averaged 32k in March. However, the March boost came at the expense of April when retail trade payrolls averaged -9k over those years. The unemployment rate likely declined slightly in April, rounding down to 4.2%. Measures of layoffs have remained near cycle lows, and we have seen tentative progress in hiring and labor demand. We expect average hourly earnings (AHE) remained subdued for a second consecutive month, rising just 0.2% m-o-m in April. Despite sluggish wage growth, we expect a rise in the workweek will lead to solid growth in aggregate private payroll income. The aggregate labor force participation rate has dropped by 0.5pp ytd. This is volatile on a m-o-m basis and might reverse to some degree in coming reports. Summary: NFP has been exceptionally noisy through the start of 2026, and our forecast for an April slowdown is largely driven by negative payback. Looking at a broader range of employment data though, the labor market appears stable, with tentative signs of reacceleration. We continue to expect NFP to average just around 75k through the remainder of 2026, with the unemployment rate declining to 4.0% by year-end. Stable employment will likely keep Fed officials focused on upside inflation risks. We continue to expect a lone 25 bps cut later this year under incoming Chair Warsh, but the case for easing is likely to depend more on cooling inflation rather than labor market stress. Market is currently pricing in status quo by end CY26 which looks to us an opportunity to receive. 1yr-1yr US SOFR is currently at 3.70 where we want to receive half risk and another half risk at 3.90. Stop loss to this view is 4% and profit target is 3.5%.
