The U.S. Department of Labor reported on Friday that the U.S. economy created far more jobs than expected in September, with the unemployment rate falling slightly and the employment situation grim.
Nonfarm payroll employment surged by 254,000 this month, up from a revised 159,000 in August and better than the Dow Jones consensus forecast of 150,000. The unemployment rate fell to 4.1%, a decrease of 0.1 percentage points.
The report, revised upwards from previous months, eased concerns about labor market conditions and could lock in a more gradual pace of interest rate cuts from the Federal Reserve. August’s total was revised up by 17,000, after rising by 55,000 in July, a monthly increase of 144,000.
The strong momentum in job creation has also spread to wages, with average hourly earnings increasing 0.4% month-on-month and 4% year-on-year. Both figures beat respective expectations for growth of 0.3% and 3.8%. The average working week fell slightly to 34.2 hours, a decrease of 0.1 hours.
“‘Wow’ across the board, much stronger than expected,” Kathy Jones, chief fixed income strategist at Charles Schwab, said of the report. “The bottom line is, this is a “A very good report. You get an upward revision and it tells you the job market is still healthy, which means the economy is healthy.”
Stock futures rose after the report, while bond yields moved sharply higher.
Restaurants and bars led the month in job creation, with the hospitality industry adding 69,000 jobs in September, compared with an average of just 14,000 jobs added in the previous 12 months.
The health care industry has been the leader in job growth, contributing 45,000 jobs, while the government sector added 31,000 jobs. Other gainers included social assistance (27,000) and construction (25,000).
A more comprehensive measure of the unemployment rate, which includes discouraged workers and those working part-time for financial reasons, fell to 7.7%. The share of the labor force working or looking for work (the labor force participation rate) remained stable at 62.7%.
The Household Employment Survey, used to calculate the unemployment rate, showed a stronger picture, with an increase of 430,000 people, and the employment-to-population ratio rising to 60.2%, up 0.2 percentage points.
Job creation was primarily skewed toward full-time positions, which increased by 414,000, while part-time jobs fell by 95,000.
After the report was released, pricing in the futures market changed dramatically, with traders now believing that there is a high probability that the Federal Reserve will cut interest rates by 25 percentage points in a row in November and December.
The report raised questions about the strength of the labor market and how that will affect the Fed’s approach to lowering interest rates.
Earlier this week, Federal Reserve Chairman Jerome Powell described employment conditions as “solid” but said they had “cooled significantly” over the past year.
There are few signs that layoffs are picking up, with new jobless claims holding steady but hiring rates cooling. Business surveys, including the Fed’s own “Beige Book” summary of business conditions, show that company headcounts are fairly stable.
After slashing overnight borrowing levels by half a percentage point last month, Powell and other Fed officials signaled a willingness to continue cutting interest rates. However, there is considerable debate within the market over the pace of action by the Fed, with Powell saying on Monday that he expects the Fed to take action in quarter-percentage increments at least through the end of the year.
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