A September jobs report that showed the pace of hiring sizzled last month keeps the Federal Reserve on track to maintain its higher for longer policy on interest rates, experts say.
U.S. nonfarm payrolls expanded by a surprising 336,000 last month, the Bureau of Labor Statistics said Friday, or the strongest rate of job creation since January. Economists were looking for the addition of about 170,000 new jobs last month.
Upward revisions to prior months also suggested that any recent moderation in the labor market might not have been as significant as first thought. Revisions to July and August showed that hiring for those two months combined was 119,000 higher than previously reported.
The unemployment rate, which is derived from a separate survey, remained unchanged at 3.8%, and was slightly higher than forecast. The unemployment rate surprised to the upside in August as more people sought to rejoin the labor force.
In a bright spot for the Fed in its fight against inflation, average hourly earnings growth came in somewhat lower than forecast, up 0.2% last month.
As of October 6, interest rate traders gave the Fed's rate-setting group known as the Federal Open Market Committee (FOMC) a 73% chance of leaving interest rates unchanged at the next Fed meeting in November, according to CME Group. By the same token, odds of a quarter-point rate hike next month stood at 27%. Where things get more interesting is with the Fed's final meeting of the year in December. In that event, traders see a 58% chance of no rate hike and a 36% chance of a quarter-point increase.
With the September jobs report now a matter of record, we turned to economists, strategists and other experts for their thoughts on what the data means for markets, macroeconomics and monetary policy going forward. Please see a selection of their commentary, sometimes edited for brevity or clarity, below.
Jobs report: the experts weigh in
"This was an extremely strong U.S. employment report that, along with recent economic data, suggests a significant acceleration in economic activity in the third quarter. As of September, the U.S. economy was still growing well above its long-term potential rate. It also keeps the probability of another rate hike from the Federal Reserve very much on the table at the upcoming October 31 to November 1 meeting." – Scott Anderson, chief U.S. economist at BMO Capital Markets
"The position of Federal Reserve policy hawks received a boost this morning as the job market was shown to remain surprisingly strong. September's gain of 336,000 jobs counters the moderation trend seen in new hiring over the prior few months. On a positive note, wage inflation continued to decelerate in September. However, the ongoing strength in hiring brings to question how much longer employers can hope to contain compensation demands." – Russell Price, chief economist at Ameriprise
"The nonfarm payroll employment number for September is sending chills through the market as early numbers are showing 10-year Treasury yields closing in on 4.9%. However, even though the Federal Reserve has left the door open for another rate hike before the end of the year, it is clear that markets have moved ahead of any further rate hike and have pushed yield to levels that would indicate that the Fed may not need to do anything more." – Eugenio Alemán, chief economist at Raymond James
"This is a blockbuster report that feeds into the higher for longer narrative. The market is having a knee-jerk reaction and selling off, but a tight labor market means consumers have jobs, and wage growth has been good for consumers. I'm expecting a good earnings season and for long-term investors it may be a good opportunity to buy on dips." – Gina Bolvin, president of Bolvin Wealth Management Group
"A September to remember in the labor market as payroll additions surprised to the upside significantly. A few things worth noting was the unemployment rate staying at 3.8% and wages slightly declining to 4.2% annually given the strong report. Lastly, the household survey was a little weaker with only 86,000 jobs added in September. At any rate, the robust employment data for September paves a difficult road ahead for the Fed as they navigate the economic data and fine tune monetary policy for the months ahead." – Charlie Ripley, senior investment strategist for Allianz Investment Management
"The September employment report flashed a surprisingly strong headline figure, but the details were more subdued. Job growth zoomed past expectations, but the household survey from which the unemployment figure is derived showed more modest growth. More importantly, wage growth sunk to its lowest level in 18 months. NAFCU still believes that the Fed is done hiking, but with the labor market showing no signs of immediate trouble, hopes for a rate cut in the near term are unfounded." – Curt Long, chief economist at the National Association of Federally-Insured Credit Unions
"A strong payroll report this morning will continue to put pressure on equity markets, which will likely look past the moderating wage growth and focus on 'too-hot' job creation. This will keep rates higher for longer and challenges the equity market soft-landing narrative as well as valuations. We're still forecasting a slowdown, but persistent strong data in the service economy is certainly nudging the risk to the downside due to the potential of more aggressive policy." – Matt Peron, director of research at Janus Henderson
"Job growth above expectations, upward revisions to previous month's reports, and stable headline unemployment at 3.8% bode well for economic growth going forward. At the same time, average hourly earnings came in as expected and are now annualizing over the last three months at a 3.4% rate. All of this will provide the Fed with the idea that stable and higher for longer is the recipe for monetary policy. Today’s employment report is good news for the economy. Certainly headwinds exist for consumers but a strong job market will allay fears of a recession in the short run while having the impact of keeping interest rates higher for longer. Stocks can cheer an outlook for better earnings, but higher rates present a challenge for overall valuations." – Steve Wyett, chief investment strategist at BOK Financial
"Jobs growth came in at nearly double the expected level for September as the labor market continues to show its chops in the face of tightening financial conditions and rising interest rates. This report continues to push longer-term rates higher to new multi-year highs. Combined with the lower JOLTS number earlier this week, this reading should be a short-term shock to the financial markets." – Ben Vaske, investment strategist at Orion Portfolio Solutions
"Today's blowout number and upward revisions are painful on the surface. They push Fed rate cuts even further into the future and keep the 10-year Treasury yield rising. Jerome Powell still has a blank check to crush inflation without worry about a recession. However, there is good news beneath the surface with wages rising less than expected and unemployment not declining. That shows people keep coming back to work without driving up pay. Goldilocks is possible over the longer term, but things are still too hot for the bulls to run yet." – David Russell, global head of market strategy at TradeStation
"Slowdown? What slowdown?! The U.S. labor market continues to exhibit amazing strength, with the number of new jobs created last month nearly twice as large as expected. Job gains were strong across the board, particularly in the services sector, reflective of ongoing demand for services by the American consumer. All said, today's jobs report was shockingly stronger than anticipated. While we still expect some moderation in the months to come, and even though the Fed has done a lot to slow the economy down, the U.S. labor market remains incredibly strong which will keep interest rates higher for longer." – George Mateyo, chief investment officer at Key Private Bank
Dan Burrows is Kiplinger's senior investing writer, having joined the august publication full time in 2016.
A long-time financial journalist, Dan is a veteran of SmartMoney, MarketWatch, CBS MoneyWatch, InvestorPlace and DailyFinance. He has written for The Wall Street Journal, Bloomberg, Consumer Reports, Senior Executive and Boston magazine, and his stories have appeared in the New York Daily News, the San Jose Mercury News and Investor's Business Daily, among other publications. As a senior writer at AOL's DailyFinance, Dan reported market news from the floor of the New York Stock Exchange and hosted a weekly video segment on equities.
Once upon a time – before his days as a financial reporter and assistant financial editor at legendary fashion trade paper Women's Wear Daily – Dan worked for Spy magazine, scribbled away at Time Inc. and contributed to Maxim magazine back when lad mags were a thing. He's also written for Esquire magazine's Dubious Achievements Awards.
In his current role at Kiplinger, Dan writes about equities, fixed income, currencies, commodities, funds, macroeconomics, demographics, real estate, cost of living indexes and more.
Dan holds a bachelor's degree from Oberlin College and a master's degree from Columbia University.
Disclosure: Dan does not trade stocks or other securities. Rather, he dollar-cost averages into cheap funds and index funds and holds them forever in tax-advantaged accounts.
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