Although pay growth is slowing, the United States’ employment expanded in September for the first time in eight months as hiring increased broadly, indicating to ongoing labour market resilience that could give the Federal Reserve justification to hike interest rates once more.

Expectations that economic activity would pick up in the third quarter were solidified by the Labour Department’s carefully watched employment report on Friday, which also included a larger-than-anticipated increase in nonfarm payrolls last month and sharply upward revisions to the job numbers for July and August.

18 months after the U.S. central bank began hiking rates to slow demand, the labour market and the overall economy’s resiliency indicate that monetary policy may stay tight for some time.

The data came out this week after reports that first-time applications for state unemployment benefits were low in September and that job vacancies increased in August.

Because long-term U.S. Treasury yields have risen to 16-year highs, financial markets and the majority of analysts think the Fed is likely done raising rates.

“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 the Fed hikes rates again,” said Kathy Bostjancic, chief economist at Nationwide.

The number of jobs on nonfarm payrolls rose by 336,000 last month, the most since January. Compared to what was previously reported for July and August, the economy added 119,000 jobs. Payroll gains were almost twice as high as the 170,000 economists in a Reuters poll had predicted. For the economy to keep up with the rise in the working-age population, over 100,000 new jobs must be created each month.

Since private payrolls climbed by 263,000 jobs, most economists rejected the claim that payrolls had been bolstered by difficulty adjusting the numbers for the return of educators after the summer break.

“The surge in teachers hired in September cannot belie the strength in payrolls now stretching back to July thanks to the biggest upward revisions to payrolls in a long time,” said Chris Low, chief economist at FHN Financial in New York.

The leisure and hospitality sector, which created 96,000 employment, was the industry with the largest rise in payrolls. With 61,000 new jobs, restaurants and bars prevailed, bringing employment in the industry back to its pre-pandemic level.

73,000 more people now work for the government, mostly in municipal and state governments that do not include education. Government employment is still 9,000 positions below its pre-pandemic level. Ambulatory healthcare services, hospitals, nursing homes, and residential care facilities all contributed to the 41,000 job growth in the healthcare sector.

Professional, scientific, and technical services employment increased, but the hiring of temporary workers remained in decline. Despite mortgage rates being at higher than 20-year highs, employment in the transportation and warehousing sector increased along with payrolls in retail and construction.

A strike by the United Auto Workers (UAW) at Stellantis, the parent company of General Motors, Ford Motor, and Chrysler, which began at the end of the week the government polled firms for the employment report, had little effect on payrolls. Payrolls in manufacturing increased by 17,000 positions.

The recently ended months-long Hollywood writers’ strike contributed to a 7,000 job loss in the motion picture and sound recording industries.

Wall Street stocks were trading higher. In comparison to a currency basket, the dollar fell. U.S. Treasury prices dropped, and the benchmark 10-year note and 30-year bond rates reached 2007-low levels.

“This blockbuster report feeds into the higher (rates) for longer narrative,” said Gina Bolvin, president of Bolvin Wealth Management Group in Boston.

Policymakers may find some solace in slower wage growth as they strive for an improvement in labour market conditions. After a 0.2% increase in August, the average hourly wage increased this year. Due to this, the annual pay growth dropped from 4.3% in August to 4.2%, which is the lowest gain since June 2021.

The majority of the new jobs generated last month were in lower-paying industries, which is probably why earnings have moderated.

Even still, the rate of wage growth continues to outpace the 3.5% rate that analysts believe is necessary to meet the Fed’s 2% inflation target. However, wage growth may slow as fewer individuals leave their employment in search of better opportunities, albeit recent sizable union contracts offer a concern.

The possibilities of a rate hike are increasing, although financial markets were leaning towards the Fed holding rates steady during its policy meeting from October 31 to November 1. Next week’s inflation figures may provide more details. The Federal Reserve has increased its benchmark overnight interest rate by 525 basis points since March 2022, bringing it to the current range of 5.25%-5.50%.

As more people entered the labour market and household employment increased slightly in September, the unemployment rate remained stable at an 18-month high of 3.8%.

However, the number of people working part-time decreased by 156,000 as a result of economic factors.

A broader measure of unemployment, which takes into account those who want to work but have given up looking for job as well as those who work part-time because they cannot find full-time employment, decreased as a result, falling from 7.1% in August to 7.0%. Longer periods of unemployment were also being experienced by fewer people.

With growth forecasts for the third quarter as high as 4.9% annualised, more than double what Fed officials consider the non-inflationary rate of approximately 1.8%, the labour market is supporting the economy.

“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 on at a decent clip, which should support overall consumer spending,” said Sarah House, a senior economist at Wells Fargo in Charlotte, North Carolina.

(Adapted from StreetInsider.com)

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