Washington, Oct 7 (The Street Press) – In September, more folks in the U.S. got jobs than in the last eight months. This suggests the job market is still doing well, which could lead the Federal Reserve to consider raising interest rates. But, it’s crucial to mention that wage growth is slowing down.
The larger-than-expected rise in nonfarm jobs last month, along with notable improvements in July and August job figures, as stated in the Labor Department’s widely watched employment report on Friday, supports the idea that the economy gained momentum in the third quarter.
Despite the U.S. central bank starting to raise rates 18 months ago to curb demand, both the job market and the overall economy remain robust. This implies that the Federal Reserve could maintain a tight monetary policy for some time. Recent reports indicate that job openings rose in August, and there were still few individuals applying for unemployment benefits in September.
The majority of financial markets and economists believe that the Fed may not increase rates further, particularly since long-term U.S. Treasury yields are currently at their highest point in 16 years.
Kathy Bostjancic, the chief economist at Nationwide, has pointed out that rising bond yields, a stronger dollar, and the fluctuating stock market are tightening financial conditions. Because of this, it’s not certain that the Fed will raise rates.
In the past month, nonfarm jobs increased by 336,000, marking the largest rise since January. Additionally, there were 119,000 more jobs in July and August than initially reported. These numbers exceeded expectations, nearly doubling what economists had anticipated in a Reuters poll, which was 170,000 jobs. To keep pace with the growing working-age population, the economy needs to generate approximately 100,000 jobs per month.
While some economists have suggested that the rise in payrolls could be attributed to the return of education workers after the summer break, most experts do not support this notion. This is particularly evident as private payrolls also increased by 263,000 jobs.
Chris Low, the chief economist at FHN Financial in New York, emphasized that the recent increase in teacher hires in September should not overshadow the overall robustness of payrolls, which has been strong since July, thanks to substantial upward revisions in job numbers.
The growth in payrolls extended to various sectors. The leisure and hospitality industry saw an increase of 96,000 jobs, notably driven by restaurants and bars, which added 61,000 positions, effectively restoring employment in this sector to pre-pandemic levels.
Government employment also saw a rise of 73,000 jobs, mainly due to gains in state government education and local government (excluding education). However, government employment remains 9,000 jobs below its pre-pandemic level.
In the healthcare sector, 41,000 jobs were added, with contributions from ambulatory healthcare services, hospitals, nursing, and residential care facilities.
Besides the mentioned sectors, there were also job gains in professional, scientific, and technical services. However, temporary help hiring continued to decline. The transportation and warehousing industry, as well as retail and construction, experienced increases in payrolls. Interestingly, the growth in construction jobs was mainly driven by homebuilding, even as mortgage rates reached their highest levels in over 20 years.
Surprisingly, despite the United Auto Workers (UAW) strike affecting General Motors (GM), Ford Motor, and Chrysler’s parent company, Stellantis, which started at the end of the survey period for this employment report, it didn’t have an impact on overall payrolls. Manufacturing jobs even increased by 17,000.
Conversely, employment in the motion picture and sound recording industries declined by 7,000 jobs, partly due to a recent months-long strike by Hollywood writers that has now concluded.
Currently, Wall Street stocks are on the rise, but the value of the U.S. dollar has dropped compared to several other currencies. U.S. Treasury prices have also declined, leading to yields on both the benchmark 10-year note and the 30-year bond reaching levels not seen since 2007.
Gina Bolvin, the president of Bolvin Wealth Management Group in Boston, remarked that this impressive jobs report reinforces the notion that interest rates may stay elevated for an extended period.
UNEMPLOYMENT RATE STEADY
Policymakers, who are looking for labor market improvements, might find some comfort in the decelerating wage growth. In September, average hourly earnings rose by 0.2%, matching the gain observed in August. This resulted in a year-over-year wage growth of 4.2%, the slowest increase since June 2021, down from 4.3% in August.
The slowdown in wage growth is likely due to many of the jobs created last month being in lower-paying industries.
However, it’s important to note that wages are still rising at a faster rate than the 3.5% pace considered consistent with the Federal Reserve’s 2% inflation target. If fewer individuals opt to leave their jobs in pursuit of better opportunities, wage growth may ease, although significant union contracts in recent times could present a risk in this regard.
Currently, financial markets appear to be leaning towards the Federal Reserve keeping interest rates unchanged at its October 31-November 1 policy meeting. However, the chances of a rate hike are increasing, as indicated by CME Group’s FedWatch tool. The upcoming inflation data will provide more clarity on this situation. Since March 2022, the Federal Reserve has raised its benchmark overnight interest rate by 525 basis points, bringing it to the current range of 5.25%-5.50%.
In September, the unemployment rate remained steady at 3.8%, which was the highest it had been in 18 months. This occurred because more individuals entered the labor market, even though household employment increased modestly.
However, the number of people working part-time for economic reasons decreased by 156,000. As a result, a broader measure of unemployment, which includes those who want to work but have stopped searching and those working part-time due to the inability to find full-time jobs, declined to 7.0% from 7.1% in August. Additionally, fewer people were experiencing extended periods of unemployment.
The robustness of the labor market is playing a pivotal role in bolstering the economy, with growth estimates for the third quarter reaching an annualized pace of up to 4.9%. This is more than double what Federal Reserve officials consider the non-inflationary rate, which is around 1.8%.
Sarah House, a senior economist at Wells Fargo in Charlotte, North Carolina, highlighted that while individual workers might be experiencing slower wage growth, the consistently strong pace of hiring indicates that overall income from the labor market is still steadily increasing. This should offer support for overall consumer spending.