U.S. Job Gains Surge in September

By Lucia Mutikani
WASHINGTON (Reuters) – U.S. job gains increased by the most in six months in September, with the unemployment rate falling to 4.1%. This indicates a resilient economy, suggesting the Federal Reserve may avoid large interest rate cuts for the remainder of the year.

In addition to the larger-than-expected increase in nonfarm payrolls reported by the Labor Department, wages rose steadily last month. The employment report revealed the economy added 72,000 more jobs in July and August than previously estimated.

The report follows annual benchmark revisions to national accounts data, which showed the economy is in much better shape than previously estimated, with upgrades in growth, income, savings, and corporate profits.

Fed Chair Jerome Powell acknowledged this improved economic context, countering trader expectations for a half-percentage-point rate cut in November, emphasizing, "this is not a committee that feels like it is in a hurry to cut rates quickly."

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." Barclays maintains its forecast for a 25 basis point cut in November.

Nonfarm payrolls surged by 254,000 jobs last month, the highest since March, surpassing economists’ forecasts of a 140,000 position increase. The three-month average of monthly job growth rose to 186,000, up from 140,000 in August. The share of industries reporting payroll increases jumped to 57.6% from 51.8% in August.

Despite a surge in positive data following a significant 50 basis points rate cut last month, some economists questioned whether the Fed had acted prematurely. Kyle Chapman from Ballinger Group noted that had the Fed known about the revisions in advance, a smaller cut might have been considered.

The dollar strengthened to a seven-week high against multiple currencies, while Wall Street stocks mostly rose. Financial markets raised the likelihood of a quarter-percentage-point rate reduction in November from 71.5% to 95% following the report, while the chances of a 50-basis-point cut nearly disappeared.

The Fed cut its policy rate by 50 basis points last month, marking its first reduction since 2020. It had previously increased rates by 525 basis points in 2022 and 2023.

Outlook for October

The labor market may face turbulence after Hurricane Helene impacted vast areas of the U.S. Southeast last week. Tens of thousands of Boeing machinists striking in September might also affect October's nonfarm payrolls data, released just before the Nov. 5 presidential election.

Although inflation remains a voter concern, it has significantly eased since its peak in 2022. The strong employment figures contradicted the weak labor market sentiment observed in surveys from the Institute for Supply Management and Conference Board. Significant job growth was noted in restaurants and bars, which gained 69,000 jobs, while healthcare added 45,000 positions.

Government jobs increased by 31,000, and construction saw a rise of 25,000 positions. Retailers contributed 15,600 jobs, primarily in supermarkets and drugstores. However, manufacturing lost 7,000 jobs, mainly in the motor vehicle sector, and transportation and warehousing shed 8,600 positions.

Wage Growth

The combination of stronger hiring and low layoffs prompted a 0.4% increase in average hourly earnings after a 0.5% rise in August. Year-on-year wage growth reached 4.0%. Despite some concerns, economists remained unconvinced that rising wages would reignite inflation.

With upcoming data likely impacted by the hurricane and Boeing strike, many analysts argued against another half-percentage-point rate cut during the Fed's Nov. 6-7 meeting. Michael Pugliese from Wells Fargo stated, "We do not see the firming in September as a risk to derailing the current downward trend in inflation," suggesting that the labor market is gradually cooling, moderated by rising productivity.

The unemployment rate's decline from 4.2% in August followed an increase of 430,000 jobs in household employment, which absorbed the 150,000 new labor force entrants. The jobless rate, which rose from 3.4% in April, has now dropped for two consecutive months. The employment-to-population ratio increased to 60.2% from 60.0%.

Oscar Munoz, chief U.S. macro strategist at TD Securities, noted, "The labor market is finding its steady state after a noisy few months."