Trump tariffs' threat to labor market overshadows April's decent jobs data, asset managers warn

A better-than-expected April jobs report does not preclude worries about what the Trump Administration’s tariff policies will mean for the U.S. workforce later this year, say some asset managers.

"We are not surprised by the decent all-around jobs print today because the pain from tariffs will not be immediate,” said Bryon Anderson, head of fixed income at Laffer Tengler Investments. “Thankfully, jobs are unaffected for the moment, but the longer this situation goes on we will start seeing the data trend negative. What Trump policy has put into motion is a longer-term threat and will show up over the next months, not days." Laffler has more than $1.5 billion in assets under management and supervision.

Lindsay Rosner, head of multi sector fixed income investing at Goldman Sachs Asset Management, said the “solid labor market data provides the Fed with scope for patience.”

However, she also cautioned that the latest data “feels somewhat backward-looking and the risks remain that a weakening economy could see the Fed resume its easing cycle later in the year.” GSAM has $3.17 trillion in assets under supervision.

The U.S. economy created 177,000 jobs in April, below March’s downwardly revised figure of 185,000, but above economists’ expectations, the U.S. Bureau of Labor Statistics reported on May 2. The unemployment rate remained unchanged at 4.2% from the prior month.

Economists had expected an increase of 135,000 jobs in April and a jobless rate of 4.2%, according to a survey by FactSet Research Systems, a financial data firm.

The Bureau also noted some revisions to payroll figures from the past two months: the February figure was revised downward by 15,000 to 102,000, while the March data was revised downward by 43,000 to 185,000. With these revisions, employment in February and March combined was 58,000 lower than previously reported.

In April, job gains were especially healthy in the health care, transportation and warehousing, financial activities and social assistance sectors. However federal government employment declined by 9,000 in April, and is now down by 26,000 since January. (Federal employees on paid leave or receiving ongoing severance pay were counted as “employed” in the survey.)

Over the past 12 months, the average monthly job gain was 152,000.

As of the morning of May 2, according to CME Group's FedWatch tool, market participants' pricing of fed fund futures indicated there is an overwhelming 98.7% probability that the central bank will keep rates unchanged at the next meeting on May 7 and only a 1.3% probability it will cut rates by 25 basis points.

The Federal Reserve’s key short-term interest rate is currently in a range of between 4.25% to 4.5%, after it kept rates unchanged at the March 19 meeting.

Jeff Schulze, managing director and head of economic and market strategy at ClearBridge Investments, said the April jobs report showed that the labor market was on solid footing as trade war tensions became more disruptive early last month.

However, he also cautioned that this may just be the “calm before the storm” as the labor market is likely to face tariff-related headwinds in the coming months.

"The Fed is likely to continue to sit on the sidelines in the near-term in light of this morning's data, likely needing to see signs that a downturn in the jobs market has actually taken hold before shifting monetary policy,” Schulze added. “Ultimately, a Fed that is staying on the sidelines for longer as trade-related headwinds take hold in the coming months adds to a building list of risks facing the markets over the intermediate term.” ClearBridge Investments has $189.6 billion in AUM.

Kevin O'Neil, associate portfolio manager and senior research analyst, Brandywine Global Investment Management, noted that the stronger-than-expected employment data will give the Trump administration more breathing room in its trade negotiations, as risk assets are likely to respond favorably.

“However, with the unemployment rate holding steady, the Federal Reserve is unlikely to shift its current policy stance in the near term,” he added. Brandywine Global has $58 billion in AUM.

Ronald Temple, chief market strategist for Lazard's financial advisory and asset management businesses, said he expects no rate cuts by the Fed at all this year.

“While it is still too early to see the effects of U.S. trade policy in the macro data, today’s labor report reaffirmed my expectation that tariffs are likely to drive inflation higher before the labor market weakens enough to warrant Fed easing,” he added. Lazard has $227 billion in AUM.