First, the bottom line: September payroll gain topped expectations, boosts stocks
- After a record 43-day government shutdown, September’s jobs report delivered a critical, albeit dated, reading on the health of the labor economy. Simply having the report feels like a win for economists and investors seeking any source of clarity as they attempt to navigate an uncertain environment defined in part by a void of data. The fact that the data was better than expected was the icing on the cake.
- Broadly, the September jobs report provides meaningful signals that — despite some cracks in the labor economy — job creation was solidly positive in September, easily topping expectations. The increase also broke a string of generally weak reports dating back to May, providing reason for hopefulness that the recent hiring malaise may be fading.
- The labor market has weakened — that much is clear, but it also doesn’t appear to be in a worrisome downward spiral. That’s provided some bullish juice for stocks in early trading today. Any further signs of stabilization will be met with a mix of relief and optimism, while easing pressure on the Fed to cut rates further with inflation still elevated.
By the numbers: Unemployment edging up; wage growth easing
- Nonfarm payrolls increased by 119,000 in September — nearly doubling the consensus forecast for a gain of 55,000, breaking a string of soft monthly gains.
- The updates weren’t uniformly positive though, as revisions to the July and August data slashed previous payrolls by a combined 33,000. That updated data shows outright declines in payrolls for June and August, flanking a moderate gain of 72,000 jobs in July.
- Unemployment edged higher to 4.4% — its third 0.1% increase in as many months. That lifted the jobless rate to its highest point in four years. The slow, steady climb provides a cautionary note within a report that was otherwise surprisingly upbeat.
- Wage growth was fractionally softer than anticipated, rising by 0.2% for the month and 3.8% over the past year. That’s still a healthy pace of increase compared to the pre-pandemic period and still looks solid against the backdrop of lower consumer inflation.
Broad thoughts: Solid, but dated, job data may provide a brief lift, but next report will be key
- While better than expected, the September jobs report doesn’t signal an “all clear” for the jobs market....not even close.
- Further, the September report is already built on stale data that will have limited shelf life given its delayed release. More recent data and high-profile layoff announcements will allow questions about labor conditions to fester a while longer as the federal government plays catch up and the public awaits the release of more timely jobless claims and nonfarm payrolls data.
- The Bureau of Labor Statistics has already announced that its October report will be shelved given the agency’s inability to retroactively collect sufficient data from that period to construct a full picture.
- As a result, the November report has become even more important. Another solid advance in nonfarm payrolls would validate that the September gain as more than just an anomaly and provide additional assurance that the labor economy is hanging in reasonably well.
- To do so, the private sector will have to do the heavy lifting. An estimated 100,000 federal governmental employees are expected to leave payrolls having taken buyouts offered earlier this year. Those public sector losses are likely to create a considerable hurdle for November’s nonfarm payrolls to show a solid gain, particularly given the relatively weak, choppy monthly results in recent months.
- The better-than-expected September jobs data also alleviates pressure for the Fed to cut again next month. Weaker wage gains should help to ease inflation pressures at the margin, particularly in the service sector, but the case for further easing to support employment is also reduced.
- A December rate cut was virtually a foregone conclusion a month ago — one that Fed Chair Jerome Powell attempted to tamp down at his October press conference. The September jobs report, along with any other data that suggests that the labor economy may be stabilizing, should buy additional time for policymakers, potentially until there’s greater clarity on the near-term inflation path and reassurance that further easing won’t ignite another round of excessive pressure on consumer prices.
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