September Jobs Report Shows Payroll Slowdown, Rising Unemployment
The U.S. Added just 29,000 jobs in September, far below forecasts, as the unemployment rate rose to 4.2%. The data has sharply reduced market expectations for an imminent Federal Reserve interest rate hike.
The September jobs report revealed a significant slowdown in payroll growth and an unexpected rise in unemployment, shifting market expectations for Federal Reserve policy. According to the Bureau of Labor Statistics, the U.S. Added 29,000 new jobs last month, well below the consensus forecast of 93,000 and marking a sharp downshift from August's surprisingly strong gain of 162,000 jobs. Also, job growth for July and August was revised down by a combined 60,000 positions.
Unemployment rises unexpectedly
The unemployment rate increased to 4.2% in September, breaking its hold at 4.1%. This uptick signals a shift in labor market conditions, even as the rate remains around a level indicating full employment. Federal Reserve officials watch the jobless rate more closely than the top-line payrolls number, and prior to the report, Chair Kevin Warsh had cited the 4.1% rate as evidence the labor side of the Fed's congressional remit was in good shape.
Wage growth moderates
Year-over-year wage inflation slipped to 3.0% in September from 3.1% the prior month. This moderation reflects a cooling in price pressures within the labor sector, which Federal Reserve officials are monitoring as they focus on inflation. The broader labor market has broadened to many sectors in recent months, with education, healthcare, and leisure and hospitality seeing the largest job increases in September, while financial activities and professional and business services saw declines.
Market reaction and Fed outlook
The weak data prompted an immediate reassessment of the Federal Reserve's likely policy path. Markets dramatically scaled back the odds of an interest rate hike at the Fed's meeting later this month. CME Group FedWatch futures traders now price in just a 16% chance of a quarter-percentage-point increase in October, down from 24% one day ago and 64.2% one week ago. Expectations have now shifted to a move being more likely in December.
New York Fed President John Williams stated there is no need for urgency regarding another rate hike, noting the Fed's focus is on inflation while the labor market remains solid. Fed Vice Chairman Philip Jefferson stated that conditions have stabilized in the labor market. The breakeven rate for nonfarm payrolls-the level of job growth needed to keep the unemployment rate stable-has fallen dramatically to between 0 and 50,000 today, down from about 125,000 just last year.
Other data points to a mixed picture. The ADP National Employment Report showed private payrolls rose by 90,000 in September, up from 36,000 in August. First-time claims for unemployment insurance edged down to 197,000 last week, and layoffs in September fell 18% from August, according to Challenger, Gray & Christmas. However, a Glassdoor survey showed employee confidence fell to a record low in September for the third time this year, with the firm's chief economist citing mounting anxiety around job security, economic uncertainty, and inflation. The market's shift in rate expectations now centers on a potential December move rather than one in October.
