WASHINGTON: The nation’s employers added 336,000 jobs in September, an unexpectedly robust gain and the biggest monthly increase since January. This proves that many companies are confident enough to continue hiring despite high interest rates and the bleak outlook for the economy.
Last month’s job growth jumped from an increase of 227,000 in August, which was revised sharply higher. July’s gain was also greater than initially estimated. The economy has added an average of 266,000 jobs per month over the past three months, a streak that could make it more likely that the Federal Reserve will raise its key interest rate again before the end of the year as it continues its push to curb inflation.
Friday’s report from the Labor Department also showed the unemployment rate unchanged at 3.8%, not far above a half-century low.
The labor market has defied a series of threats this year, most notably high and rapid inflation fed interest rate hikes designed to overcome this. While the Fed’s rate hikes have made borrowing much more expensive, steady job growth has fueled consumer spending and kept the economy growing, defying long-standing predictions of a coming recession.
The employment data poses some tough decisions for Chairman Jerome Powell and other Fed policymakers. Robust hiring could lead them to raise their policy rates in November or December, as strong job growth suggests the economy is growing too fast for inflation to cool. By raising borrowing costs, the Fed wants to slow spending by businesses and consumers.
Still, some data in Friday’s jobs report pointed to the possibility that inflation could still ease even if hiring remains healthy. Notably, wage growth slowed in September, with average hourly wages rising 4.2% from a year earlier. That’s still solid and slightly above inflation, but it was the slowest rate in more than two years.
The Fed is concerned that if wages rise too quickly, companies will raise prices to cover higher labor costs, fueling inflation. The slower pace of wage growth in September could help alleviate these concerns.
In addition, long-term interest rates have risen sharply in the past two months, making loans more expensive across the economy and potentially holding back economic growth and inflation. Mortgage interest rates have risen to 7.5%, the highest level in 23 years.
“It’s a pretty solid report and maybe it makes the Fed a little more nervous given the overall strength of the labor market,” he said. Sara House, senior economist at Wells Fargo. But the rise in interest rates “does some of the Fed’s work for it, and that makes another rate hike less attractive.”
Other threats to the economy have also emerged in recent weeks, including the resumption of student loan payments, increasing labor strikes and the continued threat of a government shutdown. It’s possible that these challenges could convince the Fed to leave rates unchanged through the end of the year.
Most major industries added jobs in the past month, from health care, which added 66,000, to manufacturing, which added 17,000, and retail, which added nearly 20,000. Professional services, a category that also includes engineers and architects, increased by 21,000. Government at all levels added 73,000 jobs, reflecting the healthy budgets of most state and local governments.
A major reason why wage growth has slowed is the influx of new workers into the labor market, partly due to increased immigration. The share of people who have a job or are looking for one has increased or remained unchanged for 11 months in a row, House said. With more workers available, employers are under less pressure to increase wages
“It’s a sign that supply and demand in the labor market are becoming better balanced,” said Bill Adams, chief economist at Comerica Bank.
Sarah Tilley, senior vice president at business software provider ServiceNow, sees that balance improving as her company looks to hire more software engineers and people with artificial intelligence and machine learning skills. The company is also looking to hire more customer service staff.
It has become easier to fill some of these jobs. Applications are up 80% from a year and a half ago, she said, with some of that increase likely due to widespread layoffs last year by tech companies.
“There is healthy competition for talent,” she says. “It went from ridiculously hard to compete for seasoned, experienced talent to just plain hard.”
Another change from a year ago, she noted, is that even workers with technical skills are less able to apply for big raises.
“People would jump off and get these real meaty raises,” she said. “And that has changed. People are less inclined to take the risk.”
The Fed’s inflation fighters have been scrutinizing every piece of data to determine whether to raise policy rates again this year. On Thursday, Mary Daly, president of the Federal Reserve Bank of San Francisco, said the Fed could stop raising rates if the labor market continues to slow and inflation continues to decline.
Last week, a price gauge closely watched by the Fed showed that measures of underlying inflation were slowing, the latest sign that overall price pressures were still easing.
“If we continue to see the labor market cool and inflation return to our target, we can keep rates stable and allow the effects of policy to take hold,” Daly said in a speech to the Economic Club of New York.
Job growth has remained resilient for most of the past two and a half years, even after high inflation flared and the Fed raised rates at the fastest pace in four decades. The Fed’s benchmark interest rate is at a 22-year high, at about 5.4%, after 11 increases from March 2022.
On the one hand, Fed officials, including Chairman Jerome Powell, have emphasized that inflation remains too far above the 2% target and that another rate hike could be needed to slow inflation to that level. At the same time, several Fed policymakers have emphasized that they want to be careful not to raise rates so much that it would trigger a deep recession.
After a period in the spring when traders seemed to expect the Fed to reverse course and cut rates quickly, financial markets now recognize that the central bank will keep its policy rate high well into 2024. That’s one reason why annualized Treasury yields on the 10th have soared since July, reaching a 16-year high of 4.8% on Friday after the report’s release.
The 10-year yield is a reference rate for other financing costs, including mortgages, car loans and business loans. Higher interest rates have, in turn, punished stocks, with the S&P 500 stock index down 7.2% since the end of July.
Last month’s job growth jumped from an increase of 227,000 in August, which was revised sharply higher. July’s gain was also greater than initially estimated. The economy has added an average of 266,000 jobs per month over the past three months, a streak that could make it more likely that the Federal Reserve will raise its key interest rate again before the end of the year as it continues its push to curb inflation.
Friday’s report from the Labor Department also showed the unemployment rate unchanged at 3.8%, not far above a half-century low.
The labor market has defied a series of threats this year, most notably high and rapid inflation fed interest rate hikes designed to overcome this. While the Fed’s rate hikes have made borrowing much more expensive, steady job growth has fueled consumer spending and kept the economy growing, defying long-standing predictions of a coming recession.
The employment data poses some tough decisions for Chairman Jerome Powell and other Fed policymakers. Robust hiring could lead them to raise their policy rates in November or December, as strong job growth suggests the economy is growing too fast for inflation to cool. By raising borrowing costs, the Fed wants to slow spending by businesses and consumers.
Still, some data in Friday’s jobs report pointed to the possibility that inflation could still ease even if hiring remains healthy. Notably, wage growth slowed in September, with average hourly wages rising 4.2% from a year earlier. That’s still solid and slightly above inflation, but it was the slowest rate in more than two years.
The Fed is concerned that if wages rise too quickly, companies will raise prices to cover higher labor costs, fueling inflation. The slower pace of wage growth in September could help alleviate these concerns.
In addition, long-term interest rates have risen sharply in the past two months, making loans more expensive across the economy and potentially holding back economic growth and inflation. Mortgage interest rates have risen to 7.5%, the highest level in 23 years.
“It’s a pretty solid report and maybe it makes the Fed a little more nervous given the overall strength of the labor market,” he said. Sara House, senior economist at Wells Fargo. But the rise in interest rates “does some of the Fed’s work for it, and that makes another rate hike less attractive.”
Other threats to the economy have also emerged in recent weeks, including the resumption of student loan payments, increasing labor strikes and the continued threat of a government shutdown. It’s possible that these challenges could convince the Fed to leave rates unchanged through the end of the year.
Most major industries added jobs in the past month, from health care, which added 66,000, to manufacturing, which added 17,000, and retail, which added nearly 20,000. Professional services, a category that also includes engineers and architects, increased by 21,000. Government at all levels added 73,000 jobs, reflecting the healthy budgets of most state and local governments.
A major reason why wage growth has slowed is the influx of new workers into the labor market, partly due to increased immigration. The share of people who have a job or are looking for one has increased or remained unchanged for 11 months in a row, House said. With more workers available, employers are under less pressure to increase wages
“It’s a sign that supply and demand in the labor market are becoming better balanced,” said Bill Adams, chief economist at Comerica Bank.
Sarah Tilley, senior vice president at business software provider ServiceNow, sees that balance improving as her company looks to hire more software engineers and people with artificial intelligence and machine learning skills. The company is also looking to hire more customer service staff.
It has become easier to fill some of these jobs. Applications are up 80% from a year and a half ago, she said, with some of that increase likely due to widespread layoffs last year by tech companies.
“There is healthy competition for talent,” she says. “It went from ridiculously hard to compete for seasoned, experienced talent to just plain hard.”
Another change from a year ago, she noted, is that even workers with technical skills are less able to apply for big raises.
“People would jump off and get these real meaty raises,” she said. “And that has changed. People are less inclined to take the risk.”
The Fed’s inflation fighters have been scrutinizing every piece of data to determine whether to raise policy rates again this year. On Thursday, Mary Daly, president of the Federal Reserve Bank of San Francisco, said the Fed could stop raising rates if the labor market continues to slow and inflation continues to decline.
Last week, a price gauge closely watched by the Fed showed that measures of underlying inflation were slowing, the latest sign that overall price pressures were still easing.
“If we continue to see the labor market cool and inflation return to our target, we can keep rates stable and allow the effects of policy to take hold,” Daly said in a speech to the Economic Club of New York.
Job growth has remained resilient for most of the past two and a half years, even after high inflation flared and the Fed raised rates at the fastest pace in four decades. The Fed’s benchmark interest rate is at a 22-year high, at about 5.4%, after 11 increases from March 2022.
On the one hand, Fed officials, including Chairman Jerome Powell, have emphasized that inflation remains too far above the 2% target and that another rate hike could be needed to slow inflation to that level. At the same time, several Fed policymakers have emphasized that they want to be careful not to raise rates so much that it would trigger a deep recession.
After a period in the spring when traders seemed to expect the Fed to reverse course and cut rates quickly, financial markets now recognize that the central bank will keep its policy rate high well into 2024. That’s one reason why annualized Treasury yields on the 10th have soared since July, reaching a 16-year high of 4.8% on Friday after the report’s release.
The 10-year yield is a reference rate for other financing costs, including mortgages, car loans and business loans. Higher interest rates have, in turn, punished stocks, with the S&P 500 stock index down 7.2% since the end of July.
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