September jobs report: Not as weak as once thought?

The September jobs report showed a 254,000 monthly job gain, blowing all estimates out of the water. Not only does it suggest that the U.S. labor market is on a stronger footing than most believed, but it also suggests that the Fed does not need to maintain such an aggressive pace of rate cuts. Market expectations for a 50bps cut in November have rightfully plunged, and a 25bps reduction is now the clear market consensus.

Report details

• Total non-farm payrolls increased by 254,000 in September, well above expectations, rebounding from the upwardly revised 159,000 rate last month. Solid employment growth this month signals a potentially more robust labor market than was previously assumed, especially as payrolls grew more than the average monthly gain over the past year.
• Job gains were evident across both structural and cyclical sides of the economy. Healthcare and government have continued to benefit from a catch-up in hiring. However, monthly gains for both have slowed in recent months, particularly as staffing levels gradually return to their pre-pandemic trend. Meanwhile, job growth was also robust within leisure and hospitality, and construction, the former likely supported by still healthy consumer demand and the latter by the steady decline in mortgage rates. Overall, these sectors made up nearly 85% of total payroll growth.
• The unemployment rate declined unexpectedly to 4.1%, helped by reduced layoff activity and new labor supply. While the participation rate held steady at 62.7% for the third straight month, participation for prime-age workers (aged 25-54) declined to 83.8%.
• Average hourly earnings accelerated by 0.4% in the month, which was higher than expected, bringing the annual rate to 4.0%, an increase from the prior month’s upwardly revised 3.9%. Despite other data pointing to normalization in the imbalance between labor supply and demand, earnings growth has remained elevated, indicating that workers still have bargaining power, with the three-month annualized rise in wages picking up to 4.3%.

Policy outlook