(Reuters) - U.S. job growth surged in April and the unemployment rate dropped to a more than 49-year low of 3.6 percent, pointing to solid economic growth.

FILE PHOTO: A man walks into register at a military job fair in Sandy, Utah, U.S., March 26, 2019. REUTERS/George Frey

KEY POINTS:

** Total payrolls rose 263,000 vs 185,000 estimate and downwardly revised 189,000 prior (original 196,000)** Private payrolls rose 236,000 vs 180,000 estimate and downwardly revised 179,000 prior (original 182,000)

** Unemployment rate drops to 3.6 pct vs 3.8 pct estimate and 3.8 pct prior

** Average hourly earnings rise 0.2 pct month-to-month vs 0.3 pct estimate and upwardly revised 0.2 pct prior (original 0.1 pct)

** Average hourly earnings rise 3.2 pct year-over-year vs 3.3 pct estimate and unrevised 3.2 pct prior

** U-6 rate unchanged at 7.3 pct** Labor force participation falls to 62.8 pct from 63 pct

** Household survey: Workforce contracted by 490,000; employed fell by 103,000; unemployed fell by 387,000

MARKET REACTION:

STOCKS: S&P e-mini futures rise, pointing to a higher Wall Street open

BONDS: 2- and 10-year Treasury yields drop after an initial move higher

FOREX: The dollar index is little changed after an initial move higher

COMMENTS:

RAHUL SHAH, CHIEF EXECUTIVE, IDEAL ASSET MANAGEMENT, NEW YORK:

“Overall it’s a positive number that shows that recession fears are unlikely to materialize anytime soon. Risk sentiment is likely to be on because the Fed is likely to remain on hold because you would need to see a string of higher job numbers at this level for the Fed to consider raising rates.

“At this point I would view it as the economy is looking fairly strong and inflation pressure are subdued, which is bullish for the stock market.

“Historically when the unemployment rate is so low that does reduce equity returns going forward. So that’s the tricky part of investing right now, balancing the fact that you have a strong economy with the fact that unemployment at historically low levels could be a contrary indicator.”

DOUG DUNCAN, CHIEF ECONOMIST, FANNIE MAE, WASHINGTON:

“This is consistent with an economy that is going from 3.2% growth at the start of 2019 to 2.2% at the end of it. The headline number looks pretty good which is driven by a drop in the participation rate. If the economy slows, you drop out of participation on the margin. There is no reason for the Fed to cut. There is no serious slowing in economic activity. There’s nothing to worry about with inflation looking at the moderate wage gains. Meanwhile, the latest report suggests there would be no significant move in housing stock given the modest increase in construction hiring. Underneath it all, things are healthy, but the economy is gradually slowing. Looking ahead, the part-time employment has been flat so it’s steady as she goes.”

CHARLIE RIPLEY, SENIOR MARKET STRATEGIST, ALLIANZ INVESTMENT MANAGEMENT, MINNEAPOLIS:

“The volatility in equities is somewhat reasonable given the headline numbers were pretty surprising and very positive in this environment. It really reiterates Powell’s message on Wednesday, that the economy is in really good shape and inflation is low and that there isn’t any need to make changes to policy right now.”

“The unemployment rate is at its lowest since 1969, just goes to show that the people in the U.S. are getting jobs and the big picture suggests the economy doesn’t seem to swimming upstream. This is sort of a goldilocks environment for the U.S. economy right now.”

“You have an environment where the economy is doing well and inflation remains steady there is really no evidence that inflation will move higher so I don’t think there is a need to continue to push interest rates up this year.”

“The market was disappointed with the Fed not coming out and signaling a rate cut just to keep the economy moving but in the Fed’s view they really don’t need to do that and this report is evidence of that. The economy is doing quite well, the Fed really didn’t change anything, it’s just the markets that got it all wrong to price in a rate cut.”

TOM DI GALOMA, MANAGING DIRECTOR, SEAPORT GLOBAL, NEW YORK:

“I think generally clients were set up for this trade. There’s been some liquidations going on for the last couple of days based on the perception that this number’s going to be a strong data set for the most part. My sense is that buyers are going to be around just because the data wasn’t so out of whack and we’ve gotten back to levels where accounts want to buy the market.”

DAVID LAFFERTY, CHIEF MARKET STRATEGIST, NATIXIS, BOSTON:

“It was a pretty solid jobs report, better than expectations. It was good across the board in all the ways that matter.”

“There’s nothing in the labor market that looks like a recession is on the horizon. Powell wasn’t dovish enough for the market on Wednesday. This fairly strong jobs report may be looked at with a little market skepticism. It’s just another data point that tells us a first rate cut from the Fed isn’t coming any time soon ... It’s almost become more about the Fed reaction function than the underlying data.”

JACOB OUBINA, SENIOR U.S. ECONOMIST AT RBC CAPITAL MARKETS, NEW YORK:

“From a headcount standpoint, it blew the doors off the bus. The declining unemployment rate was not surprising to us. The labor force participation rate was a little bit high given demographic forces over recent months and you can see it kind of veered off of trend a bit. There has been a normalization there.

“This will obviously have an effect on the view that the Fed will cut rates this year. This unemployment rate is going to do a lot to dissuade you of that thesis.

“You’re firing on all cylinders in terms of the dual mandate. You’ve got average hourly earnings at 3.2 (percent) – that was a touch softer, but you had a revision to the prior month. 3.2 (percent) is clearly responding to lower rates of unemployment. There are wage pressures in the system. And so at some point that is going to lead to a wage push inflation narrative where companies are going to try to defend margins as these compensation costs get larger.

“This tells you that there’s a lot more capacity than people think for the economy to continue growing above trend.”

MOHAMED EL-ERIAN, CHIEF ECONOMIC ADVISER, ALLIANZ, NEWPORT BEACH, CALIFORNIA:

“With employment creation coming well above consensus market expectation and the unemployment rate dipping lower, April’s Jobs report confirmed that the labor market remains in a very good place. This is particularly good news for American households, notwithstanding the surprising absence of an uptick in wage growth. And it will help ensure that the U.S. economy continues to outperform other advanced countries.”

JJ KINAHAN, CHIEF MARKET STRATEGIST, TD AMERITRADE, CHICAGO:

“Really solid. Hard to find fault. I find it interesting we had that bump on the S&P’s and they came back to where they were. The bond market hasn’t moved. But from the economy point of view, this is very, very solid. It supports a little bit of what (Federal Reserve Chair Jerome) Powell said that those who were hoping for him to talk about a rate cut, employment is certainly continuing at an amazing pace.

“When you see the lowest unemployment rate since December of 1969 that is impressive. The one thing that stood out to me in this report that was really solid is the fact we were worried about construction jobs the last couple of months. They came back in a very nice way this time. Retail down a little bit, not necessarily surprising as companies, as you see in the earnings reports, continue to try and figure out the brick and mortar versus online.

“Powell was smart to say we are going to stand pat. His inflationary comments are really what got people because they were like how could you say this is just transitory on low inflation. At some point, it is going to come back. We have seen what has happened to crude oil over the last week and a half giving back a good percentage of its gains over the past month or so and that is the biggest area of inflationary pressures so we will see.

“The wage number here, some people were looking for a little bit higher on that, so that is the other thing in this report that is not what some people want. There is a little bit of human nature, the market is actually going so well that as we keep hitting highs people start expecting the bad news to come. People want the bad news to come, it feels like, and it is confusing a lot of people in the market.”