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HomeBusiness NewsSeptember Job Surge: U.S. Employment Rises Sharply, But Wage Growth Slows

September Job Surge: U.S. Employment Rises Sharply, But Wage Growth Slows

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In a much-anticipated report released by the U.S. Labor Department on Friday, U.S. employment experienced its most significant increase in eight months, bolstered by robust hiring across various sectors. The data suggests that the labor market remains resilient and may provide further justification for the Federal Reserve to consider raising interest rates, despite a slowdown in wage growth.

The unexpected surge in nonfarm payrolls for September, coupled with substantial upward revisions to job counts in July and August, has fueled expectations that the U.S. economy accelerated in the third quarter of the year. This resilience in both the labor market and the broader economy, even after the Federal Reserve initiated rate hikes to temper demand, indicates that monetary policy may remain relatively tight for the foreseeable future.

Earlier reports in the week also indicated positive trends, with job openings soaring in August and initial unemployment benefit claims remaining low throughout September. However, despite these encouraging signs, some experts believe that the Federal Reserve may be reluctant to implement further rate hikes due to the recent surge in long-term U.S. Treasury yields, which have reached 16-year highs.

Kathy Bostjancic, Chief Economist at Nationwide, pointed out that “with bond yields soaring, the dollar strengthening, and equity market volatility increasing, there is a renewed tightening of financial conditions that does some of the work for the Fed, so it’s not a done deal that the Fed hikes rates again.”

The Labor Department’s report reveals that nonfarm payrolls increased by a substantial 336,000 jobs in September, marking the largest rise since January. Moreover, revisions to July and August’s figures added an additional 119,000 jobs to the count. These figures significantly outpaced the expectations of economists polled by Reuters, who had forecasted an increase of around 170,000 jobs.

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Economists have noted that the surge in payrolls is not solely attributable to the return of education workers after the summer break, as private payrolls also showed significant gains, with an increase of 263,000 jobs.

Among the sectors that contributed to the broad-based employment increase, the leisure and hospitality industry saw the most significant growth, adding 96,000 jobs. Restaurants and bars, in particular, dominated this sector, creating 61,000 positions, effectively restoring employment levels to pre-pandemic levels.

Government employment experienced a notable rise of 73,000 jobs, driven primarily by state government education and local government (excluding education). Nevertheless, government employment remains 9,000 jobs below its pre-pandemic levels.

Other sectors that saw notable employment gains included healthcare (adding 41,000 jobs), professional, scientific, and technical services, transportation and warehousing, retail, and construction.

Surprisingly, a strike by the United Auto Workers (UAW) at major automakers General Motors, Ford Motor, and Stellantis did not significantly impact overall payrolls. The manufacturing sector even managed to add 17,000 jobs.

However, employment in the motion picture and sound recording industries suffered a loss of 7,000 jobs, partly due to a recently ended months-long strike by Hollywood writers.

Following the release of this optimistic employment data, stocks on Wall Street showed positive trends, with the dollar slightly lower against a basket of currencies, and U.S. Treasury prices falling as yields on the benchmark 10-year note and 30-year bond reached levels last seen in 2007.

Gina Bolvin, President of Bolvin Wealth Management Group in Boston, noted, “This blockbuster report feeds into the higher rates for longer narrative.”

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Despite the strong employment figures, wage growth showed signs of moderation in September. Average hourly earnings increased by 0.2%, consistent with August. This brought the annual wage growth rate down to 4.2%, the lowest since June 2021, from 4.3% in August. Economists attribute this moderation to the preponderance of lower-paying jobs created in September.

Nevertheless, wages continue to rise faster than the 3.5% pace that aligns with the Federal Reserve’s 2% inflation target. The trend in wage growth may depend on whether people continue to leave their jobs in search of higher-paying opportunities, though recent generous union contracts could pose a risk.

Financial markets currently lean towards the Federal Reserve keeping interest rates unchanged at its upcoming October 31-November 1 policy meeting, although the likelihood of a rate hike is increasing, according to CME Group’s FedWatch tool. The next round of inflation data, expected next week, is likely to provide more clarity on the central bank’s decision-making.

The unemployment rate remained unchanged at 3.8% in September, holding steady at an 18-month high, as more people entered the labor market. Fewer individuals were working part-time due to economic reasons, leading to a decrease of 156,000 in this category. Consequently, a broader measure of unemployment, which encompasses those who want to work but have given up searching and part-timers who cannot find full-time employment, dropped from 7.1% in August to 7.0% in September.

The strength of the labor market continues to buoy the economy, with growth estimates for the third quarter reaching as high as a 4.9% annualized pace, significantly exceeding the Federal Reserve’s non-inflationary rate target of approximately 1.8%.

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Sarah House, a senior economist at Wells Fargo in Charlotte, North Carolina, pointed out that “while the typical worker may be experiencing a slower pace of wage growth, the still-solid rate of hiring suggests growth in aggregate income derived from the labor market continues at a decent clip, which should support overall consumer spending.”

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