Job Market Strong in September - Will It Slow Fed Rate Cuts?

The jobs report from the Bureau of Labor Statistics for September was considerably stronger than expected.

Economists had been predicting payroll growth of 140-150,000 jobs; instead, payrolls rose by 254,000. The estimates for July and August were revised up substantially; the average for the last 3 months is now 185,000, which is considerably higher than earlier estimates. The strongest growth was in eating and drinking places, where employment rose by a very robust 69,000 jobs.

Wage growth has also been more robust than in previous months. Combining August and September, monthly wages have risen by about 5% (on an annualized basis). And, from the household survey, the employment rate out of the population grew by .2 percentage points (60.0 to 60.2%), while the unemployment rate fell - especially among high school dropouts and Hispanic workers.

It would probably be a mistake to read too much into this, or any other report, that covers just a single month. The monthly employment statistics tend to bounce around, and 3-6 month averages present a more informative picture. Also, other measures like the job vacancy rate (which held steady at 4.8 percent in August), suggest a steadier labor market. And another reading in the coming weeks on productivity will also be important - since the relative strong productivity growth (above 2 percent) over the past year and a half suggest we can live with wage growth of 4 percent or higher.

Still, the large bump in payrolls in September, combined with upward revisions for July and August as well as more robust wage growth, suggest that the job market weakness we had detected in the late spring and summer months might have been a bit overstated, or perhaps a more temporary lull than we thought. The Federal Reserve cut its benchmark interest rate by a half percentage point earlier this month, indicating its concern about a slowing economy. The current data might cause it to slow down further rate reductions a bit, until we get a clearer picture of where the job market is really heading.