The unexpected strength in the labor market presents a dilemma for the Federal Reserve. Policymakers are grappling with the question of whether to raise interest rates further to cool the economy and combat rising inflation.
In a welcome development for the US economy, the Labor Department released its monthly Employment Situation Report, revealing that nonfarm payrolls surged by an impressive 336,000 in September.
The standout feature of the September jobs report is that the increase in nonfarm payrolls surpassed the Dow Jones consensus estimate of 170,000 by a considerable margin. This positive development was even more striking when compared to the previous month.
August saw an increase of around 100,000 jobs, making September’s gain of 336,000 a substantial leap forward. This steady progress is a promising sign for both job seekers and the broader economic recovery.
While the increase in nonfarm payrolls was undoubtedly a positive sign, wage growth appeared softer than anticipated. Average hourly earnings inched up by 0.2% for the month and 4.2% from a year ago, falling short of respective estimates of 0.3% and 4.3%.
From a sector perspective, the leisure and hospitality sector saw the most substantial job gains in September, with 96,000 new jobs added. Other sectors that experienced growth included government (73,000 jobs), healthcare (41,000 jobs), and professional, scientific, and technical services (29,000 jobs).
Service-related industries played a significant role in the overall job growth, contributing 234,000 jobs, while goods-producing industries added just 29,000 jobs. Average hourly earnings in the leisure and hospitality industry remained flat for the month but showed a year-over-year increase of 4.7%.
Impact of the Nonfarm Payroll Report on the US Economy
The unexpected strength in the labor market presents a dilemma for the Federal Reserve. Policymakers are grappling with the question of whether to raise interest rates further to cool the economy and combat rising inflation. While there have been mixed messages from Fed officials, the consensus seems to lean toward maintaining higher rates for a more extended period.
Ian Lyngen, head of US rates strategy at BMO Capital Markets, commented:
“Overall, it was a stronger-than-expected print without question — moderating wage growth is good news for the Fed but nothing that will prevent them from hiking in November.”
This sentiment aligns with the market’s expectation of a potential quarter-point rate hike on November 1st, as indicated by Lyngen.
The release of the strong jobs data had an immediate impact on the US Treasury yields. The yield on the 10-year Treasury rose by nearly 13 basis points to 4.839%, nearing a 16-year high. Earlier in the week, it had briefly surged to 4.884%, reflecting investors’ concerns about the potential for tighter monetary policy.
The 2-year Treasury yield was last trading at 5.14%, up more than 11 basis points. It is essential to understand the inverse relationship between yields and bond prices. As yields rise, bond prices fall, which can have broad implications for various financial markets, including stocks and housing.
On the other hand, stock market futures turned sharply negative following the report, with the Dow futures down more than 250 points.