- The number of non-agricultural employees rose by 336,000 in September
- Unemployment rate unchanged at 3.8%
- Average hourly earnings increase by 0.2%; 4.2% more than in the previous year
WASHINGTON, Oct 6 (Portal) – U.S. employment rose by the most in eight months in September as the number of workers increased across the board. This suggests continued labor market strength, which could give the Federal Reserve ammunition to raise interest rates again even as wage growth slows.
Last month’s larger-than-expected rise in nonfarm payrolls and sharp upward revisions to July and August employment numbers reported by the Labor Department on Friday in its closely watched jobs report bolstered expectations that economic activity accelerated in the third quarter.
The labor market and overall economic resilience, 18 months after the Federal Reserve began raising interest rates to cool demand, suggest monetary policy could remain tight for some time. The report followed news this week that job openings jumped in August and initial claims for state unemployment benefits remained low in September.
Financial markets and most economists believe the Fed is probably done raising interest rates as long-term U.S. Treasury yields have risen to 16-year highs.
“As bond yields soar, the dollar strengthens and equity market volatility increases, there is a renewed tightening of financial conditions, taking some of the work off the Fed’s plate. “So it’s not a done deal that the Fed will raise interest rates again,” said Kathy Bostjancic. Chief Economist at Nationwide.
Nonfarm payrolls rose by 336,000 jobs last month, the largest increase since January. The economy added 119,000 more jobs in July and August than previously reported. Wage gains were nearly double the 170,000 forecast by economists in a Portal poll. The economy needs to create about 100,000 jobs per month to keep pace with the growth of the working-age population.
Some economists argued that payrolls were pushed up by difficulties adjusting data for the return of education workers after the summer break. This assumption was rejected by most as private sector payrolls increased by 263,000 jobs.
“The increase in teachers hired in September cannot mask the strength in payrolls, which dates back to July thanks to the largest upward revisions in payrolls in a long time,” said Chris Low, chief economist at FHN Financial in New York .
The broad increase in payrolls was driven primarily by the leisure and hospitality industry, which added 96,000 jobs. Restaurants and bars dominated, adding 61,000 jobs, bringing employment in the industry back to pre-pandemic levels.
Public sector employment increased by 73,000 jobs, driven by the formation of state government and local government (excluding education). Public sector employment remains 9,000 jobs below pre-pandemic levels. In the health sector, 41,000 jobs were created through outpatient health services, hospitals, nursing and care facilities.
There were increases in employment in professional, scientific and technical services, although hiring of temporary workers continued to decline. Employment in the transportation and warehousing industries rose, as did payrolls in retail and construction, largely driven by housing construction, even as mortgage rates were at their highest in more than 20 years.
The United Auto Workers (UAW) strike at General Motors (GM.N), Ford Motor (FN) and Chrysler parent Stellantis (STLAM.MI) that began late in the week had no impact on payrolls, the government surveyed Companies for the employment report. The number of employees in the manufacturing sector increased by 17,000 jobs.
Employment in the film and sound recording industries fell by 7,000, partly due to a recently ended month-long strike by Hollywood writers.
An employee hiring sign is seen in a window of a business in Arlington, Virginia, U.S., April 7, 2023. Portal/Elizabeth Frantz/File Photo acquire license rights
Stocks on Wall Street traded higher. The dollar was lower against a basket of currencies. U.S. Treasury prices fell, with yields on benchmark 10-year bonds and 30-year bonds reaching levels last seen in 2007.
“This blockbuster report feeds into the narrative of higher (interest rates) in the longer term,” said Gina Bolvin, president of Bolvin Wealth Management Group in Boston.
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Unemployment rate stable
Policymakers expecting labor market conditions to ease may take some comfort from slower wage growth. Average hourly wages rose 0.2% after a similar increase in August. This reduced annual wage growth to 4.2% from 4.3% in August, the smallest increase since June 2021.
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The slowdown in wages was likely because most of the jobs added last month were in lower-paying industries.
Still, wages are still rising faster than the 3.5% that economists say is consistent with the Fed’s 2% inflation target. But as fewer people quit their jobs in search of greener pastures, wage growth could weaken, although recent massive union contracts pose a risk.
Financial markets were leaning toward the Fed leaving interest rates unchanged at their October 31-November 31 level. However, according to CME Group’s FedWatch tool, the likelihood of a rate hike is increasing. Inflation data next week could provide more clarity. Since March 2022, the Fed has raised its federal funds rate by 525 basis points to the current range of 5.25% to 5.50%.
The unemployment rate was unchanged at an 18-month high of 3.8% in September as household employment increased slightly and more people entered the labor market.
However, fewer people worked part-time for economic reasons; the number fell by 156,000.
As a result, a broader measure of unemployment that includes people who want to work but have given up looking and those who work part-time because they can’t find full-time work fell to 7.0% from 7.1% in August. Fewer people also experienced longer periods of unemployment.
Strength in the labor market is helping to support the economy, with third-quarter growth estimates at 4.9% on an annual basis, more than double what Fed officials consider a noninflationary rate of about 1.8%.
“While the typical worker may be experiencing slower wage growth, the still-solid hiring rate suggests that overall labor market income growth is continuing at decent levels, which should support overall consumer spending,” said Sarah House, a senior economist at Wells Fargo in Charlotte, North Carolina.
Reporting by Lucia Mutikani; Edited by Chizu Nomiyama and Andrea Ricci
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