September Jobs Report Shows Big Jump in Hiring as Labor Market Stays Resilient

Key Takeaways

• U.S. employers added 254,000 jobs in September, blowing past expectations for 150,000 jobs to be added.
• It was the most jobs added in six months, underscoring the resilience of the job market despite a recent downshift.
• Rapid job growth could take pressure off the Federal Reserve to cut interest rates rapidly.

The job market had downshifted in recent months, but it went into overdrive in September.

U.S. employers added 254,000 jobs in September, an acceleration from the upwardly-revised 159,000 in August, and the most since March, while the unemployment rate edged down to 4.1% from 4.2%, the Bureau of Labor Statistics said Friday. The figure blew past the expectations of forecasters, who had called for an increase of 150,000 jobs and the unemployment rate to hold steady, according to a survey of economists by Dow Jones Newswires and The Wall Street Journal. On top of that, the previous two months of job growth were revised up by a total of 72,000.

The unexpectedly rapid job growth comes at a time when financial markets, and officials at the Federal Reserve, are eyeing data on the job market especially closely.

The Fed is looking for signs of weakness in the job market, which could pressure policymakers to cut interest rates faster to support the economy and prevent a spike in layoffs. If the job market stays healthy, the Fed could instead reduce its benchmark fed funds rate at a slower pace, which would keep borrowing costs on all kinds of loans higher for longer.

"Today’s data hit a grand slam with payrolls coming in strong, positive revisions, and unemployment falling," Lindsay Rosner, head of multi-sector investing at Goldman Sachs Asset Management, wrote in a commentary. "The economy is heading into the post-season solidly. This is a beat on every aspect and the Fed must be smiling as they got their bats out!"

Odds of Big Rate Cut Dwindle

The report threw cold water on expectations for the Fed to cut its benchmark interest rate sharply when its policy committee next meets in November.

After the release of the report, financial markets were pricing in just a 6% chance the Fed would cut its benchmark interest rate by half a percentage points as opposed to a more cautious quarter-point cut, according to the CME Group's FedWatch tool, which forecasts rate movements based on fed funds futures trading data. Before the jobs data was released, traders were pricing in about a 30% chance of a half-point cut in November.

Fed officials cut the benchmark interest rate in September for the first time in four years after keeping it at a two-decade high to slow the economy and push down inflation. With the annual inflation rate nearly back to the Fed's goal of 2%, the central bank now aims to cut borrowing costs enough to support the job market, but not by so much that it reignites the high inflation that roiled the economy after the pandemic.

"The Fed can continue recalibrating its policy stance to one that’s less restrictive, and this shows that they don’t really need to be in a rush right now," Elyse Ausenbaugh, head of investment Strategy at J.P. Morgan Wealth Management, wrote in a commentary.

Fears of Economic Downturn Subside

Employers in restaurants and healthcare added the most jobs, increasing employment by 69,000 and 57,000 respectively.

The sharply higher job growth was a notable rebound after a summer in which the unemployment rate crept up, fueling concerns about a possible economic slowdown.

"This should put to rest—at least for the next month—the idea that the economy is about to fall off a cliff or that imminent doom is on the horizon, "Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, wrote in a commentary.