The U. S. labor market stumbled in September, posting a meager 29,000 increase in nonfarm payrolls. Economists had expected a much stronger showing of 84,000, the unemployment rate ticked up to 4.2%, surpassing the 4.1% predicted by economists polled by Dow Jones.
Adding to the disappointment, revisions to the previous months' data painted a gloomier picture than initially thought. August's job numbers were adjusted down to 133,000, and July was revised to show a loss of 10,000 jobs. This recalibration led to a net reduction of 60,000 jobs from earlier reports. The numbers point to a labor market that is not as robust as previously believed.
Yet, traders found a silver lining in the disappointing figures, as they interpreted the data to mean that the Federal Reserve might hold off on raising interest rates at its upcoming October meeting. Stock futures climbed, and Treasury yields dropped, reflecting a belief that the Fed would keep rates steady. The market-implied odds of the Fed holding rates at the October meeting were high.
Thomas Simons, chief U. S. economist at Jefferies, observed that the September payroll data likely cemented the Fed's choice to pause on rate hikes. He noted that the August job surge seemed more like a rebound from weak hiring in June and July rather than a sign of sustainable growth.
Despite the lackluster payroll numbers, the household survey offered some brighter spots. It showed household employment rising by 406,000 and the labor force expanding by 485,000. The participation rate edged up by 0.2 percentage points to 61.8%, its highest level since May. An alternative unemployment measure, which includes discouraged workers and part-time employees seeking full-time work, dropped to 7.6%.
Federal Reserve officials are keeping a close watch on these labor market shifts as they weigh future interest rate decisions. Although the labor market has shown some resilience, inflation remains a pressing issue, with core inflation running at a 3% annual rate, above the Fed's 2% target. The Fed's recent quarter-point rate hike in September underscores its commitment to taming inflation.
Wage growth showed signs of slowing down, with average hourly earnings inching up just 0.1% in September. This marks a 3% increase over the past year, the lowest since May 2021. Wall Street had been expecting a 0.3% rise for the month and a 3.1% increase for the year. The average workweek held steady at 34.6 hours.
Heather Long, chief economist at Navy Federal, pointed out the frustration among Americans over limited job opportunities and stagnant wages, which are being chipped away by inflation. Despite this, she called the labor market stable and suggested the Fed is likely to approve a rate hike in December.
Looking at sectors, healthcare led job gains with 17,000 new positions, followed by construction with 11,000, and manufacturing with 9,000. On the flip side, government employment dropped by 17,000, temporary help services fell by 11,000, and information services lost 10,000 jobs, with concerns about artificial intelligence playing a role. Financial activities also saw a decrease of 7,000 jobs.
Despite the labor market's challenges, the broader U. S. economy has shown signs of vitality. The Commerce Department revised its estimates for first- and second-quarter GDP growth to 2.5% and 2.2%, respectively. Meanwhile, the Atlanta Fed is tracking third-quarter GDP growth at 3.7%.
