U.S. nonfarm payrolls experienced a significant increase in September, rising by 336,000 jobs, the highest in eight months, according to the Labor Department’s employment report. The strong hiring data, along with upward revisions to July and August’s job counts, indicates that the U.S. economy is experiencing persistent labor market strength and accelerated economic activity in the third quarter. While this could potentially give the Federal Reserve reason to raise interest rates again, wage growth is slowing.
The report also revealed that the unemployment rate remained unchanged at 3.8% for the month of September. Additionally, average hourly earnings increased by 0.2%, bringing the year-on-year rise to 4.2%. Despite the positive job growth, wage growth has slowed down, possibly due to the high number of jobs added in lower-paying industries.
The surge in job gains was led by the leisure and hospitality industry, which added 96,000 jobs, with restaurants and bars contributing significantly to this increase. Government employment also rose by 73,000 jobs, thanks to state government education and local government (excluding education). However, government employment remains below pre-pandemic levels by 9,000 jobs.
The healthcare sector saw an increase of 41,000 jobs, driven by ambulatory healthcare services, hospitals, and nursing and residential care facilities. Professional, scientific, and technical services employment also saw gains, but temporary help hiring continued to decline. The transportation and warehousing industry, as well as the retail and construction sectors, also experienced payroll increases.
The report noted that the strike by the United Auto Workers (UAW) at General Motors, Ford Motor, and Chrysler parent Stellantis did not have an impact on payrolls due to the timing of the survey. However, employment in the motion picture and sound recording industries fell by 7,000 jobs, partly due to a recently ended strike by Hollywood writers.
The strong labor market and overall economic resilience, even as the Federal Reserve has been raising rates over the past 18 months, suggest that monetary policy could remain tight for some time. However, with bond yields increasing and equity market volatility rising, there is uncertainty surrounding whether the Fed will hike rates again.
Financial markets responded with stocks on Wall Street trading higher, while the dollar weakened against other currencies. U.S. Treasury prices fell, resulting in yields on the benchmark 10-year note and 30-year bond reaching levels not seen since 2007.
Despite the positive job growth, economists noted that wage growth has slowed down, which could provide some comfort to policymakers looking for signs of easing labor market conditions. Average hourly earnings rose by 0.2% in September, the same as August, resulting in an annual increase of 4.2%, the smallest gain since June 2021.
While wages are still rising faster than the Fed’s 2% inflation target, the moderation in wages could be attributed to the majority of job gains being in lower-paying industries. If fewer people quit their jobs in search of higher wages, wage growth could further moderate.
There are differing opinions on whether the Fed will raise rates again at its upcoming policy meeting. While financial markets are leaning towards the Fed keeping rates unchanged, the odds of a hike are rising. Inflation data in the following week could provide more clarity. The Fed has already raised its benchmark overnight interest rate by 525 basis points since March 2022.
Overall, the labor market’s strength is sustaining the U.S. economy, with third-quarter growth estimates as high as a 4.9% annualized pace. This is more than double the rate considered non-inflationary by Fed officials. Despite slower wage growth, the consistent rate of hiring suggests that aggregate income from the labor market continues to support consumer spending.