So much for a fifty basis point cut in November. The U.S. economy added way more jobs than economists were thinking in September and the unemployment rate fell to four month low, according to the latest data from the Bureau of Labor Statistics (BLS).
- Total nonfarm payroll rose by 254,000 jobs in September, a significant uptick from August’s revised figure of 159,000 and the largest monthly gain since March.
- The unemployment rate dropped to 4.1%—the lowest level since June—after a third consecutive monthly decline.
Beat The Street: Economists were predicting a smaller, yet still robust, 150,000 job gain and they were expecting the unemployment rate to hold at 4.2% in September.
Breaking It Down: Restaurants and bars were the standout contributors in September, adding 69,000 jobs, far above their 12-month average of 14,000.
- The health care sector followed with 45,000 new jobs, while government employment rose by 31,000, and social assistance and construction added 27,000 and 25,000 jobs, respectively.
Wage Growth: Along with strong job creation, wages also showed positive momentum. Average hourly earnings for all private nonfarm payroll employees grew by 0.4% to $35.36 in September, slightly down from the 0.5% gain in August.
- Wages are now up 4.0% year-over-year, up from 3.9% in August and the highest increase since May.
Upward Revision: Adding to the positive outlook, the BLS revised the figures for both July and August upwards, adding a total of 72,000 more jobs than previously reported. August’s total was adjusted by 17,000, bringing it to 159,000, while July saw a larger revision, up 55,000 to 144,000.
What They’re Saying: Economists and market analysts were largely surprised by the strong September report. Nick Timiraos of The Wall Street Journal tweeted, “A very strong employment report,” encapsulating the general sentiment.
- Josh Hirt, a senior economist at Vanguard, told The Financial Times, “These numbers are a bit of a game-changer. When you look at the revisions too, this changes the narrative about the underlying pace of job growth . . . overall it’s very positive.”
- Ben Casselman of The New York Times added an important demographic observation, noting, “If you adjust for the aging of the population, labor force participation returned to its 2000-era peak in September. That’s something many economists thought would never happen.”
No More 50: The unexpectedly strong jobs report, combined with upward revisions and wage growth, is likely to have an impact on the Federal Reserve’s upcoming decision on interest rates. Market expectations for a significant rate cut in November are now tempered, with the CME FedWatch tool showing a 95% probability that the Fed will opt for a modest quarter-point cut rather than the 50 basis point cut some had hoped for.
Bottom Line: The September jobs report paints a picture of a resilient labor market, supported by robust job creation and accelerating wage growth. For the Fed, this stronger-than-expected data will likely reduce the urgency for aggressive rate cuts in the near term, adding another layer of complexity to its policy decisions moving forward.
