Washington, Oct 7 (The Street Press) – In September, more people found jobs in the U.S. than in the past eight months. This shows that the job market is still strong, which might make the Federal Reserve think about raising interest rates again. However, it’s important to note that wage growth is slowing down.
The bigger-than-expected increase in nonfarm jobs last month, along with significant improvements in the job numbers for July and August, as reported by the Labor Department in its widely observed employment report on Friday, confirms the belief that the economy picked up speed in the third quarter.
Even though the U.S. central bank began raising rates 18 months ago to slow down demand, both the job market and the overall economy are still strong. This suggests that the Federal Reserve might keep monetary policy tight for a while. Recent news shows that job openings increased in August, and there were still few people applying for unemployment benefits in September.
Most financial markets and economists think that the Fed might not raise rates anymore, especially because long-term U.S. Treasury yields are at their highest in 16 years.
Kathy Bostjancic, the chief economist at Nationwide, mentioned that with bond yields going up, the dollar getting stronger, and stock market ups and downs, financial conditions are getting tighter again. Because of this, it’s not a sure thing that the Fed will raise rates.
In the past month, nonfarm jobs went up by 336,000, which is the biggest increase since January. Also, there were 119,000 more jobs in July and August than we knew before. These numbers were almost double what economists expected in a Reuters poll, which was 170,000 jobs. For the economy to keep up with the growing working-age population, it needs to create around 100,000 jobs each month.
While some economists suggested that the increase in payrolls might be because of the return of education workers after the summer break, most experts don’t agree with this idea. This is especially true because private payrolls also went up by 263,000 jobs.
Chris Low, the chief economist at FHN Financial in New York, pointed out that the recent surge in teacher hires in September shouldn’t overshadow the overall strength in payrolls, which has been strong since July, thanks to significant upward revisions in job numbers.
The growth in payrolls was seen across various sectors. In the leisure and hospitality industry, there was an increase of 96,000 jobs, with a significant portion coming from restaurants and bars, which created 61,000 positions. This has brought employment in the sector back to where it was before the pandemic.
Government employment also saw an increase of 73,000 jobs, primarily driven by state government education and local government (excluding education). However, government employment is still 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.
In addition to the sectors mentioned earlier, there were also job gains in professional, scientific, and technical services. However, the hiring of temporary help continued to decline. The transportation and warehousing industry, as well as retail and construction, saw increases in payrolls. Notably, the growth in construction jobs was mainly driven by homebuilding, even though mortgage rates were at their highest in over 20 years.
Despite a strike by the United Auto Workers (UAW) at General Motors (GM), Ford Motor, and Chrysler’s parent company, Stellantis, which began at the end of the survey period for this employment report, it didn’t have an impact on overall payrolls. Manufacturing jobs increased by 17,000.
On the flip side, 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 ended.
At the moment, stocks on Wall Street are showing gains, while the value of the dollar has decreased compared to various other currencies. U.S. Treasury prices have fallen, causing yields on both the benchmark 10-year note and the 30-year bond to reach levels not seen since 2007.
Gina Bolvin, the president of Bolvin Wealth Management Group in Boston, commented that this impressive jobs report contributes to the idea that interest rates may remain higher for an extended period.
UNEMPLOYMENT RATE STEADY
Policymakers, who are hoping for improvements in the labor market, might find some reassurance in the slowing wage growth. In September, average hourly earnings increased by 0.2%, matching the gain seen in August. This resulted in a year-over-year wage growth of 4.2%, which is the smallest increase since June 2021, down from 4.3% in August.
The slowdown in wage growth is likely because many of the jobs created last month were in lower-paying industries.
However, it’s worth noting that wages are still increasing at a rate faster than the 3.5% pace that economists consider consistent with the Federal Reserve’s 2% inflation target. If fewer people decide to leave their jobs in search of better opportunities, wage growth might moderate, although the recent significant union contracts could pose a risk in this regard.
Currently, financial markets seem to be leaning towards the Federal Reserve keeping interest rates unchanged at its October 31-November 1 policy meeting. Nevertheless, the chances of a rate hike are on the rise, as indicated by CME Group’s FedWatch tool. The upcoming inflation data will provide more clarity on the situation. Since March 2022, the Federal Reserve has increased its benchmark overnight interest rate by 525 basis points, reaching the current range of 5.25%-5.50%.
In September, the unemployment rate stayed the same at 3.8%, which was the highest it had been in 18 months. This happened because more people entered the labor market, although household employment increased modestly.
However, the number of people working part-time for economic reasons dropped by 156,000. This resulted in a broader measure of unemployment, which includes those who want to work but have given up searching and those working part-time because they can’t find full-time jobs, decreasing to 7.0% from 7.1% in August. Additionally, fewer people were experiencing longer periods of unemployment.
The strength of the labor market is playing a crucial role in supporting the economy, with growth estimates for the third quarter as high as an annualized pace of 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, noted that even though individual workers might be seeing slower wage growth, the consistently strong pace of hiring suggests that overall income from the labor market is still growing steadily. This should provide support for overall consumer spending.
