Employment report April 2026

Selective resilience on an uneven foundation

• The April jobs report points to a labor market that has stabilized, with payrolls rising 115,000 following an upwardly revised 185,000 gain and the unemployment rate holding steady at 4.3%. Still, despite signs of stabilization, the upside surprise in April’s payrolls was narrowly concentrated and reflects some pockets of resilience rather than a broad‑based strengthening in hiring.
  
  
• More broadly, the labor market remains stuck in a fragile low‑growth equilibrium. Hiring has cooled and become more selective, while the steady unemployment rate reflects ongoing labor supply constraints and the absence of broad‑based layoffs. The result is a labor market that is no longer a growth engine, but also one that is not signaling a material deterioration.
  
  
• Wage growth momentum continues to ease with hourly earnings rising a modest 0.2% on the month. With nominal wage growth at 3.6% year over year (y/y), it’s very likely that real wage growth, adjusted for Consumer Price Index (CPI) inflation, will turn negative in April. While tax refunds provided a one-time buffer to the inflation shock from the Middle East, falling wages will bite into spending in the coming months. 
  
  
• Looking ahead, we expect a largely frozen labor market in 2026, characterized by discerning hiring, compressed wage growth and strategic workforce resizing as labor supply remains historically strained. We see job growth running slightly below breakeven, with the unemployment rate drifting higher. Risks remain tilted to the downside, with lingering geopolitical risk likely to cap hiring in coming months.
  
  
• For the Fed, steady job growth and low unemployment keeps the focus squarely on inflation. Steady labor conditions, alongside rising inflation risks, are raising the bar for rate cuts and supporting a prolonged pause. We expect the June Federal Open Market Committee (FOMC) statement will feature a two-sided formulation, acknowledging that rate hikes could be appropriate if inflation remains above target, and we wouldn’t be surprised to hear some policymakers suggest a rate hike as the next policy move. Our expectation remains that the Fed will stay on hold throughout the rest of the year.

Hiring remained uneven across sectors in April, with momentum concentrated in a limited set of industries while others continued to lag. The private sector added 123,000 jobs, while government employment declined for a seventh consecutive month and posted an 8,000 drop, reflecting the ongoing drag from federal payrolls. Since reaching a peak in October 2024, federal government employment is down by 348,000.

In the industry details, healthcare and social assistance (+54,000) remained the primary driver of job gains but hiring slowed markedly, running at nearly half the pace seen in March after a period of above‑trend strength. At the same time, retail trade (+22,000) posted its largest increase since December 2024, while transportation and warehousing (+30,000) saw the strongest gain since February 2024 — together accounting for roughly 45% of total job growth. That concentration underscores uneven momentum across industries and suggests limited durability if consumer demand continues to moderate. Within transportation, gains were primarily driven by couriers and messengers (+38,000), likely reflecting ongoing strength in e‑commerce logistics and delivery demand, though this segment tends to be volatile.

Elsewhere, the composition was less supportive. Leisure and hospitality remained soft, and both information (-13,000) and financial activities (-11,000) continued to shed jobs. The ongoing contraction in these higher‑skilled sectors remains a notable weak spot and could increasingly reflect efficiency gains and cost discipline linked to AI adoption. Goods‑producing sectors remain soft overall, though there are early signs that manufacturing hiring may be bottoming out, with trend employment gains turning slightly positive over the past three months.

On the household survey side, the picture continues to point to constrained labor supply. The labor force declined by 92,000 in April, while household employment fell by 226,000. The participation rate dropped for a fifth consecutive month to 61.8%, hovering near multi‑decade lows outside of the pandemic era. Slower population growth, aging demographics and a sharp slowdown in immigration are keeping labor supply structurally tight. This limited supply buffer is allowing unemployment to remain range‑bound even as hiring slows — the unemployment rate held steady at 4.3% in April.

On the wage front, average hourly earnings rose 0.2% month over month, with year‑over‑year growth ticking up modestly to 3.6%. While base effects drove the slight firming in annual wage growth, the broader trend remains one of gradual moderation. The labor market is becoming increasingly disinflationary — both through cooling wage pressures and through softer disposable‑income growth, which is going to continue to weigh on household purchasing power and consumer spending.

The views reflected in this article are the views of the author(s) and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.