US job growth beats expectations in September; unemployment rate unchanged at 3.8%

US job growth beats expectations in September; unemployment rate unchanged at 3.8%

WASHINGTON (Oct 6): The US job market experienced a robust surge in September, indicating continued strength, potentially paving the way for the Federal Reserve to raise interest rates later this year. However, wage growth is showing signs of moderation.

The Labor Department’s closely monitored employment report revealed that nonfarm payrolls expanded by an impressive 336,000 jobs last month. Furthermore, the data for August was revised upward, reflecting the addition of 227,000 jobs, up from the previously reported figure of 187,000.

Economists surveyed by Reuters had predicted an increase of just 170,000 jobs, with estimates ranging from 90,000 to 256,000. This unexpected surge in job creation occurred despite the usual bias for September payrolls data to be lower due to seasonal adjustments related to the return of education workers after the summer break.

To maintain pace with the growth in the working-age population, the economy needs to generate approximately 100,000 jobs per month.

The labor market’s resilience, even 18 months after the Federal Reserve began raising interest rates to temper demand, suggests that monetary policy may remain tight for an extended period.

While most economists do not anticipate another rate hike by the US central bank this year, it’s worth noting that since March 2022, the Fed has already increased its benchmark overnight interest rate by 525 basis points, reaching the current range of 5.25% to 5.50%.

A strike by the United Auto Workers (UAW) at General Motors, Ford Motor, and Chrysler parent Stellantis did not impact the payrolls, despite approximately 25,700 of the 146,000 UAW members being on strike during the government’s September employment survey.

Similarly, the end of a prolonged strike by Hollywood actors had no immediate effect on the employment figures, as they returned to work after the survey period. The unemployment rate remained unchanged at a high of 3.8% for an 18-month period.

Monthly wage growth remained modest, with average hourly earnings increasing by 0.2% in September, mirroring the gain seen in August. Over the 12 months leading up to September, wages rose by 4.2%, a slight dip from the 4.3% growth observed in August. Despite this moderation, wages continue to outpace the 3.5% pace that economists believe aligns with the Fed’s 2% inflation target.

However, as fewer individuals leave their jobs in search of better opportunities, wage growth could further decelerate, although significant union contracts negotiated recently pose a potential risk.

The strength of the labor market is playing a crucial role in sustaining economic growth, with estimates for the third quarter projecting an annualized pace of up to 4.9%. This is more than double the rate of around 1.8% that Fed officials consider non-inflationary.

Nonetheless, concerns loom over the economy, with rising US Treasury yields and political turmoil in Washington casting shadows. Additionally, the resumption of student loan repayments by millions of Americans this month is expected to weigh on consumer spending, impacting various sectors including durable goods, real estate, travel, and entertainment, with potential ripple effects on employment. Economists estimate that the end of the more than three-year moratorium could reduce households carrying student debt by at least US$400 per month.

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