Non-farm employment rose by 254k in September, well ahead of the consensus forecast calling for a gain of 150k. Job gains in the two prior months were revised up by 72k.
- Over the past three months, payroll gains have averaged 186k, only slightly below the 203k averaged over the prior twelve-month period.
Private payrolls rose 223k, with most of the gains concentrated in leisure & hospitality (+78k), health care & social assistance (+71.7k), construction (+25k) and professional & business services (+17k). Government hiring chipped in with 31k jobs last month.
- Encouragingly, the breadth of hiring rose to 57.6 in September, or the highest reading in eight months.
In the household survey, civilian employment surged by 430k, well outpacing a more modest gain in the labor force (+150k), which pushed the unemployment rate down a tenth of a percentage point to 4.1%. The labor force participation rate held steady at 62.7% for the third consecutive month.
Average hourly earnings (AHE) were up 0.4% month-on-month (m/m) – a modest deceleration from August’s upwardly revised reading of 0.5% m/m. On a twelve-month basis, AHE were up to 4.0% (from 3.8% in August).
Key Implications
Overall, this was a strong employment report. Not only did job gains come in well above expectations, but revisions also showed a stronger pace of hiring in prior months. For the third quarter, payrolls totaled 557k, up from Q2’s gain of 442k.
In a speech earlier this week, Chair Powell reiterated that the Fed is in no hurry to cut rates and that his base case is for two additional 25 basis point (bps) cuts by year-end. We know the Fed didn’t cut 50bps last month because the economy was headed towards recession. They cut to recalibrate the level of interest rates closer to the performance of an economy largely moving at a trend pace. However, they haven’t yet stuck the landing on inflation, and now commodity prices are on the rise – potentially impeding further improvement. Today’s report may not prevent another cut in November, but it certainly lends caution to the timing and level of the neutral rate. Following the payrolls release, futures markets are now pricing for just 57bps of additional easing by year-end (down from yesterday’s 69bps).
