U.S. job gains increased by the most in six months in September and the unemployment rate fell to 4.1%, pointing to a resilient economy that likely does not need the Federal Reserve to deliver large interest rate cuts for the rest of this year.
In addition to the bigger-than-expected increase in nonfarm payrolls reported by the Labor Department on Friday, wages rose at a solid pace last month. The closely watched employment report also showed the economy added 72,000 more jobs in July and August than previously estimated.
The report followed on the heels of annual benchmark revisions to national accounts data last week that showed the economy is in much better shape than previously estimated, with upgrades to growth, income, savings and corporate profits.
This improved economic backdrop was acknowledged by Fed Chair Jerome Powell this week when he pushed back against traders’ expectations for another half-percentage-point rate cut in November, saying “this is not a (policy-setting) committee that feels like it is in a hurry to cut rates quickly.”
The share of industries reporting an increase in payrolls jumped to 57.6% from 51.8% in August.
The flow of strong data, including consumer spending, since the U.S. central bank kicked off its policy easing cycle with an unusually large 50 basis points rate reduction last month, had some economists wondering if policymakers had panicked.
“If the Fed had known the revisions to the July and August prints in advance, it is very likely that they would have gone for a 25 basis points move instead,” said Kyle Chapman, FX markets analyst at Ballinger Group.
The dollar rallied to a seven-week high against a basket of currencies. Stocks on Wall Street were mostly higher. U.S. Treasury yields rose.
Financial markets boosted the odds of a quarter-percentage-point rate reduction in November to 95% from 71.5% before the report, CME Group’s FedWatch tool showed. The odds of a 50-basis-point cut were almost wiped out.
The Fed cut its policy rate by 50 basis points last month to the 4.75%-5.00% range, its first rate reduction since 2020. It hiked rates by 525 basis points in 2022 and 2023.
MUDDY OCTOBER OUTLOOK
The strike, if it persists beyond next week, could dent the nonfarm payrolls data for October, which will be released just days before the Nov. 5 U.S. presidential election.
Voters have been mostly concerned by inflation, though price pressures have abated considerably after surging in 2022.
Robust employment gains last month defied weak labor market sentiment in the Institute for Supply Management and Conference Board surveys. Hiring at restaurants and bars, which increased by 69,000 jobs, lead the nearly broad rise in payrolls.
The healthcare sector added 45,000 positions, driven by home healthcare services, hospitals as well as nursing and residential care facilities.
Government employment increased by 31,000 jobs, lifted by state and local government hiring. Social assistance payrolls rose by 27,000 jobs. Construction employment advanced by 25,000 positions, reflecting solid gains in nonresidential specialty trade contractor jobs.
Retailers added 15,600 jobs, many of them at supermarkets and drugstores. There were also job gains in professional and business services as well as financial activities.
But manufacturing shed 7,000 jobs, concentrated in the motor vehicle industry. Transportation and warehousing lost 8,600, the bulk of them at warehouses and storage facilities.