Job growth fell short of expectations in September and the unemployment rate declined despite efforts by the Federal Reserve to slow the economy, the Labor Department reported Friday.
Nonfarm payrolls rose 263,000 in the month, compared with the Dow Jones estimate of 275,000.
The unemployment rate was 3.5% vs. the forecast of 3.7%, as the labor force participation rate fell to 62.3% and the size of the labor force decreased by 57,000. A broader measure that includes discouraged workers and those holding part-time jobs for economic reasons saw an even steeper drop, from 7% to 6.7%.
The September payroll figure marked a slowdown from the 315,000 increase in August and tied for the lowest monthly increase since April 2021.
In closely watched wage figures, average hourly earnings rose 0.3% in the month, in line with estimates, and 5% from a year earlier, an increase that is still well above the previous norm. to the pandemic but 0.1 percentage point below the forecast.
Stock Market Futures moved lower after release while government bond yields rose. Investors looked to the figures for an indication of how the Federal Reserve will react in its bid to rein in inflation.
“This puts the nail in the coffin for another 75 [basis point rate increase] in November,” said Jeffrey Roach, chief economist at LPL Financial. A basis point is 0.01 percentage point.
From a sector perspective, leisure and hospitality led gains with an increase of 83,000, a gain that left the industry 1.1 million jobs below pre-pandemic levels in February 2020.
Elsewhere, health care added 60,000, professional and business services increased 46,000 and manufacturing contributed 22,000. Construction rose 19,000 and wholesale trade rose 11,000.
A drop of 25,000 government jobs largely contributed to the report missing expectations. State and local hiring is highly seasonal, so the decline points to a report that was otherwise largely in line with expectations and shows a resilient labor market.
Also on the negative side, financial and transportation and storage activities recorded losses of 8,000 jobs.
The report comes amid a months-long effort by the Fed to bring down inflation that is nearing its highest annual rate in more than 40 years. The central bank has raised rates five times this year by a total of 3 percentage points and is expected to continue raising rates through at least the end of the year.
Despite the gains, job growth remained relatively strong as companies face a massive mismatch between supply and demand that has left around 1.7 job openings for every available worker. That, in turn, has helped boost wages, though the increase in average hourly earnings has been well below the rate of inflation, which most recently was 8.3%.
Fed officials, including Chairman Jerome Powell, have said they expect the rate hikes to inflict “some pain” on the economy. Members of the Federal Open Market Committee indicated in September that they expect the unemployment rate to rise to 4.4% in 2023 and hold there before falling to 4% in the longer term.
Markets widely expect the Federal Reserve to continue the pace of its rate hikes with another 0.75 percentage point hike in November. Traders assigned a 78% chance of a three-quarter point move after the jobs numbers, and expect another half-point increase in December that would take the fed funds rate to a 4.25-4% range. 5 %.
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