On Friday, we expect the Bureau of Labor Statistics (BLS) to report that U.S employment is still growing. We have reduced our estimates for GDP growth, but do not see data suggesting that the U.S. economy has entered a broad-based contraction commonly known as a recession, despite concerns about tariffs, job cuts at government agencies, and falling business and consumer confidence. Low claims for unemployment insurance support our thesis and our expectation for April payrolls to rise by a solid 130,000. The three-month average is 152,000. Consensus has been fluctuating around 130k. One way we check our estimate for payrolls is to subtract separations from hires from the BLS's most-recent Job Openings and Labor Turnover Survey (JOLTS) report. That estimate is 135,000. What if the April employment report is weaker than we expect? Economists see about a 45% chance that the U.S. will enter a recession in the next 12 months, according to a survey this month from the Wall Street Journal. Monthly changes to payrolls are volatile and subject to revision, but a negative number (below zero) would probably tilt the collective recession assessment above 50%. We do not expect a year-over-year decline from the 157.6 million workers on establishment payrolls in April 2024, but that would be a stern warning. We expect the unemployment rate in March to tick up to 4.3%, which is still healthy. We expect that average hours worked remained at 34.2 hours and growth in average hourly earnings remained at 3.8%. Any meaningful uptick in layoffs would start to appear in initial jobless claims, which are reported every Thursday. The current four-week average of 220,000 is well below the 300,000 mark that might be a recession warning. With many job cuts announced by the federal government yet to hit the BLS data and the potential for additional job losses by government contractors and institutions that may lose funding, we will take a close look at our forecasts if the four-week average climbs above 250,000 for a few weeks.

The job market remained healthy in March amid concerns it is poised to slow. The Bureau of Labor Statistics (BLS) reported that the U.S. economy generated 228,000 nonfarm jobs in March, well above our forecast of 125,000 and the consensus of 135,000. February's payrolls were revised lower by 34,000 and January by 14,000. The March result and the overall revisions to past results reduced the three-month average to 152,000 from 200,000. This morning's numbers follow private reports earlier in the week. Outplacement specialist Challenger, Gray & Christmas reported that March 2025 job-cut announcements tripled to 275,240 from March 2024 and jumped 60% from February 2025. Government cuts represented 80% of the March total. Payroll processor ADP reported faster-than-expected hiring, with 155,000 jobs added by the private sector. The March unemployment rate ticked up to 4.2%, which matched our estimate. Average hourly earnings increased nine cents month to month and are 3.8% higher year over year, below our estimate of 4.0% and the reading of 4.0% in February. The average workweek remained at 34.2 hours, a tick above our estimate. Employment increased in healthcare; social assistance; transportation and warehousing; and retail trade. Employment showed little change in other major industries, including mining, quarrying, and oil and gas extraction; construction; manufacturing; wholesale trade; information; financial activities; professional and business services; leisure and hospitality; and other services. The manufacturing sector added 1,000 jobs. Healthcare added 77,800, while federal government employment fell by 4,000. After the report, stock futures improved slightly but are still deeply in the red on tariff worries. The yield on the 10-year Treasury rose by four basis points to 3.94%. Futures contracts suggested a 57% probability that the Fed will maintain the 4.25%-4.5% funds target on May 7, little changed from before the report. Both before and after the report, traders saw a 100% probability that the Fed will cut the policy target in June.

Despite bursts of outperformance, small- and mid-cap stocks (SMID) have underperformed large-caps year to date -- as they have over the past five years. But they may be in a better position to generate market-beating returns going forward. For one thing, SMID companies tend to focus on domestic markets, so their businesses could be less disrupted by the trade and tariff debate, or fallout from unrest in the Middle East, the Russian invasion of Ukraine, issues in China, or other geopolitical developments. As well, the prices of SMID stocks generally are lower than the prices of large-caps. Finally, there are long stretches in the record books when SMID stocks have outperformed large-caps. SMID stocks can be risky, but despite those risks, diversified investors look to have exposure to small- and mid-caps based on the long-term performance record. We estimate that 20% of the U.S. stock market's capitalization is comprised of SMID stocks.

This morning's release from the Bureau of Economic Analysis (BEA) will be the third, and final, update of 4Q GDP. The update last month indicated 4Q real GDP rose at an annualized 2.3% pace, a slight deceleration from 3.1% growth in 3Q. The all-important consumer economy remained very strong through the holidays, which provides a tough comparison for 1Q. Consumer spending, designated as Personal Consumption Expenditures (PCE) in the GDP report, rose 4.2% and contributed 2.79 percentage points of the 2.3% growth in 4Q GDP. Private domestic investment subtracted 1.05 points, contracting 5.7%, with equipment down 9.0% against 10.8% growth in 3Q. We don't expect a major revision to 4Q GDP this morning. Between 1999 and 2023, the average absolute revision to the quarterly percentage change in real GDP was just 30 basis points, according to the BEA. PCE was boosted by the huge services component, which was up a solid 3.3% on top of 2.8% growth in 3Q24. Consumer spending on goods rose 6.1%. Within goods, durables were up 12.1%, which shows no hint of recession, and nondurables were up 3.0%. Residential fixed investment rose 5.4% in 4Q. We expect approximately 1.1% growth in 1Q25. Government consumption and expenditures were up 2.9%, with the federal government up 4.0%, and state and local government up 2.2%. National Defense posted 4.7% growth, extending a 13.9% gain in 3Q. On April 30, the BEA will release its advance estimate for 1Q25 GDP. We expect 1Q24 growth of 1.6%. The consumer services category (which represents 47% of GDP) is an important component of our forecast for 1Q and for 2% growth in 2025. It is normally a stable category amid elevated uncertainty on tariffs and falling consumer confidence. It includes hard-to-avoid expenses such as rent, utilities, healthcare, and insurance. The ISM Services Index showed expansion for an eighth consecutive month in February and has indicated expansion in 54 of the last 57 months.