U.S. employment rose unexpectedly in September, illustrating a durable labor market and bolstering the case for another interest rate hike by the Federal Reserve.
Nonfarm payrolls rose by 336,000 last month, the most since the beginning of the year, after significant upward revisions in the previous two months, a Bureau of Labor Statistics report showed Friday. The unemployment rate remained at 3.8% and wages increased at a modest pace.
Treasuries fell, extending a selloff in government securities that has rapidly driven up yields over the past month and threatens to undermine the economy by raising borrowing costs. Traders increased bets on a Fed rate hike by the end of the year, while the S&P 500 opened lower and the dollar strengthened.
“This is a spectacular report, and it will make people think that the Fed might pull the trigger on another hike before the end of the year, rates sell-off be damned,” said Omair Sharif, president and founder of Inflation Insights. LLC, in a note to clients.
The surprising strength of the labor market suggests that companies remain confident in their sales prospects. While the pace of hiring has cooled since last year, its resilience remains a key source of strength for household spending and the broader economy.
For the Federal Reserve, however, the strength of the labor market threatens to hinder progress in curbing inflation. The government figures, along with other data such as the recent rebound in job openings, add to the case for central bank officials to raise interest rates (already at their highest level in 22 years) in another quarter of a percentage point this year.
Hiring was relatively broad, driven by increases in leisure and hospitality, healthcare, and professional and business services. Government payrolls also increased.
Average hourly earnings rose 0.2% last month and 4.2% from a year earlier, the smallest annual gain since mid-2021. Earnings for nonsupervisory employees, who make up the majority of workers , recorded the smallest consecutive monthly increases since 2020.
What Bloomberg Economics says…
“The knee-jerk reaction to the surprising rise in September nonfarm payrolls is that the Fed might have to raise more, but the details favor another interpretation. “Household employment is weak and the soft increase in wages and hours worked suggests that labor market conditions are not so optimistic.”
—Anna Wong, Stuart Paul and Eliza Winger
The mismatch between labor supply and demand is becoming better balanced in part due to an improvement in participation in recent months. That said, the participation rate (the proportion of the population working or looking for work) remained stable last month.
Historically, September payroll numbers can be a bit outlandish, given the need for the BLS to adjust to late summer layoffs in the leisure and hospitality sector and a surge in hiring related to the start of the new school year.
The employment report is prepared from two independent surveys. The survey of businesses and government agencies, which produces the payroll and wage data, illustrated surprisingly robust job growth. However, the household survey, which is used to calculate the unemployment rate, showed that employment increased by a much more modest 86,000 positions during the month.
While Friday’s report had little notable impact due to the recent proliferation of strikes, that will likely change with October’s jobs report. In particular, payrolls are expected to be affected by the United Auto Workers’ unprecedented strike against former Detroit automakers.