The U.S. Department of Labor released a report indicating a significant increase in non-farm payroll employment for September, with 254,000 jobs added, surpassing market expectations of approximately 150,000. The unemployment rate slightly decreased to 4.1%. Concurrently, wages grew, with average hourly earnings rising 0.4% from the previous month, exceeding market forecasts.
July's non-farm payroll data was revised upward from 89,000 to 144,000, and August's figures were adjusted from 142,000 to 159,000. The robust job growth data reduces concerns about a rapid cooling of the U.S. labor market potentially leading to a recession. As a result, expectations of a 50-basis point interest rate cut in November have significantly diminished.
According to the CME's FedWatch tool, there is a 95.1% probability of a 25-basis point rate cut in November, up from 67.9% the previous day. Additionally, the probability for another 25-basis point cut in December is 79.2%.
Analysts suggest the unexpected surge in non-farm payrolls, coupled with a decline in the unemployment rate, increases the likelihood of a "soft landing" for the U.S. economy. Federal Reserve Chair Jerome Powell and other officials have expressed a desire to avoid further cooling of the labor market while balancing inflation control.
In its September meeting, the Fed executed its first rate cut in four and a half years, lowering the federal funds rate by 50 basis points to a range of 4.75%-5.0%. The unusual reduction aimed to prevent a downturn in the labor market. Powell acknowledged that if July's job report had been available earlier, a rate cut might have occurred in July.
Powell mentioned that the Fed plans to continue rate cuts to sustain economic growth but indicated no need for drastic reductions as seen previously. The Fed's next policy meeting is set for early November, with the October jobs report anticipated to show weaker results due to port worker strikes and Hurricane Helen's impact on the labor market.
ING Chief International Economist James Knightley highlighted the need for the Fed to remain cautious yet also noted the resilient nature of the U.S. economy, which often surpasses expectations. To maintain this momentum, the Fed needs to gradually ease policies to foster further economic expansion.
The increase in September's hiring was primarily driven by the leisure and hospitality sector, healthcare, and government. The hospitality sector added 69,000 jobs, significantly above its 12-month average of 14,000; healthcare and government contributed 45,000 and 31,000 new positions, respectively.
