Job gains in the United States increased by the most in six months in September, and the unemployment rate fell to 4.1%, indicating a resilient economy that won’t likely require significant interest rate cuts from the Federal Reserve for the remainder of this year.
Wages increased steadily last month, in addition to the Labor Department’s Friday report of a larger-than-expected rise in nonfarm payrolls. The economy added 72,000 more jobs in July and August than anticipated, according to the employment report that is closely watched.
The report came on the heels of annual benchmark revisions to data from the national accounts that were made the previous week. These revisions showed that the economy is in much better shape than expected, with improvements to growth, income, savings, and corporate profits.
“This is not a (policy-setting) committee that feels like it is in a hurry to cut rates quickly,” Fed Chair Jerome Powell said this week when he pushed back against traders’ expectations for another half-percentage point rate cut in November.
Jonathan Millar, a senior economist at Barclays, stated, “Today’s report reinforces the broad resilience theme for the U.S. economy, pushing aside concerns of an imminent deterioration in labor market conditions.” We continue to propose a 25 basis point reduction in November.”
According to the Bureau of Labor Statistics of the United States Department of Labor, nonfarm payrolls increased by 254,000 jobs in March, the most since March. Reuters polled economists and found that payrolls would rise by 140,000 positions, up from the previously reported 142,000 positions in August.
The estimated number of jobs added in September ranged from 70,000 to 220,000. From 140,000 in August, the three-month average of monthly job growth rose to 186,000.
The portion of businesses revealing an expansion in payrolls leaped to 57.6% from 51.8% in August.
Since the U.S. central bank began its policy easing cycle last month with an unusually large 50 basis point rate cut, strong data, including consumer spending, raised concerns among economists that policymakers may have been in a panic.
According to Ballinger Group FX markets analyst Kyle Chapman, “it is very likely that they would have gone for a 25 basis points move instead if the Fed had known the revisions to the July and August prints in advance.”
When compared to a basket of currencies, the dollar rose to a seven-week high. The majority of Wall Street stocks were up. The yields on the US Treasury rose.
CME Group’s FedWatch tool indicated that financial markets increased the likelihood of a quarter-point rate cut in November to 95% from 71.5 percent prior to the report. The likelihood of a 50-basis-point cut almost vanished.
The Federal Reserve cut its policy rate last month by 50 basis points to 4.75 percent-5.0%, its first rate cut since 2020. In 2022 and 2023, it increased rates by 525 basis points.
MUDDY OCTOBER OUTLOOK However, the labor market may experience brief turbulence following Hurricane Helene’s destruction of large portions of the Southeast United States last week. In September, tens of thousands of Boeing (BA.N) machinists went on strike, which had an impact on the aerospace company’s suppliers.
The nonfarm payrolls data for October, which will be released just days before the U.S. presidential election on Nov. 5, could be affected if the strike continues beyond next week.
Inflation has been the primary source of concern for voters, but after soaring in 2022, price pressures have significantly decreased.
According to surveys conducted by the Institute for Supply Management and the Conference Board, sluggish sentiment regarding the labor market was disproved by robust employment gains that occurred last month. The nearly all-encompassing rise in payrolls was led by hiring at restaurants and bars, which added 69,000 jobs.
Home healthcare services, hospitals, and nursing and residential care facilities all contributed to the 45,000 new jobs added in the healthcare industry.
State and local hiring contributed to a 31,000-job increase in government employment. 27,000 jobs were added to payroll for social assistance. Nonresidential specialty trade contractor job growth accounted for the 25,000 new construction jobs added.
15,600 new jobs were added by retailers, many of which were in drugstores and supermarkets. Additionally, financial activities and professional and business services saw increases in employment.
However, manufacturing lost 7,000 jobs, primarily in the automobile industry. 8,600 lost in transportation and warehousing, most of them in warehouses and storage facilities.
SOLID WAGE GAINS Stronger hiring and fewer layoffs contributed to an increase in average hourly earnings of 0.4 percent, up from 0.5 percent in August. After rising by 3.9% in August, annual wage growth was 4.0 percent. However, the average workweek decreased from 34.3 hours to 34.2 hours in the previous month. There was no concern among economists that rising wages would rekindle inflation.
Nonetheless, they opposed a second half-percentage point rate cut at the Fed’s meeting on November 6 and 7. For that meeting, policymakers will have access to October’s report, which is likely to be clouded by Helene and the Boeing strike.
Michael Pugliese, senior economist at Wells Fargo, stated, “We do not see the firming in September as a risk to derail the current downward trend in inflation.” A pickup in productivity growth further tempers the inflationary pressures emanating from the labor market, and the underlying trend in the labor market still appears to be toward gradual cooling.”
Even though 121,000 more people were working multiple jobs, the details of the household survey from which the unemployment rate is derived were similarly optimistic. The increase of 430,000 jobs in household employment, which more than absorbed the 150,000 people who entered the labor force, contributed to the decrease in the unemployment rate from 4.2 percent in August.
The number of unemployed people has increased from 3.4% in April 2023, partly due to an increase in temporary layoffs during the annual auto plant shutdowns in July.
