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A strong jobs report for September likely means the Fed faces slower rate cuts

ByVanessa

Oct 4, 2024 #(Country), #América, #and, #Bank, #Bank of America, #Business News, #Economy, #Explainer, #Federal, #Federal Reserve System, #history, #In a Nutshell( t) Modular Story, #Inflation, #Interest, #Interest Rates, #Israel, #Israel (Country), #Job report, #Jobs, #Know, #Modular, #Neutral, #News, #not, #of, #Point, #Rates, #Report, #Reserve, #Salaries, #Salaries and Wages, #System, #The, #Total, #Total Neutral, #TTP, #TTP Explainer not visual, #TTP What We Know, #visual(t .) )To, #Wages, #We, #What
A strong jobs report for September likely means the Fed faces slower rate cuts

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According to the Bureau of Labor Statistics, the American job market boomed again in September, with U.S. employers adding a whopping 254,000 jobs.

The number was above the average monthly increase of 203,000 over the past 12 months and the strongest figure since March, according to the office. Food and beverage, health care, government, social assistance and construction led to job gains that exceeded economists' average forecast for 140,000 new jobs and exceeded the upwardly revised August figure of 159,000 new jobs.

The unemployment rate also unexpectedly fell to 4.1% from 4.2% in August.

The compelling report refuted ideas that the Federal Reserve might continue to cut interest rates aggressively to keep the job market afloat after a sluggish summer of hiring, economists said. The Fed cut its key interest rate last month for the first time in more than four years by half a percentage point, or 50 basis points, to a range of 4.75% to 5%, from a 23-year high of 5.25% to 5%. 5%. A further half-point reduction was also expected by the end of the year.

“Don’t even talk about a 50 basis point cut in November, that’s not up for debate,” said Tim McDonough, senior portfolio manager at Key Wealth. “Overwhelming numbers for September’s jobs data…are further evidence that the economy is making stronger progress than expected.”

In which sectors were new employees hired in September?

Here are some job categories that saw some of the largest employment gains in September:

  • Catering and catering: 69,400 new jobs
  • Social assistance: 26,500 new jobs
  • Construction: 25,000 new jobs
  • Local government: 16,000 new jobs
  • Retail: 15,600 new jobs
  • Home health services: 12,700 new jobs
  • Hospitals: 11,500 new jobs

And here are some industries that are shedding jobs in September:

  • Temporary employment services: 13,800 jobs lost
  • Warehousing and storage: 11,000 jobs lost
  • Transportation equipment manufacturing: 5,200 jobs lost

More encouraging details

Here are some of the more encouraging data points from September's robust jobs report:

  • Average hourly wages rose 0.4% to $35.36 in September, an annual increase of 4%. Both figures exceeded economic researchers' estimates.
  • Restaurants and bars had a great month. The hospitality industry added 69,000 jobs in September, well above the average monthly gain of 14,000 jobs in the previous 12 months.
  • The unemployment rate for black workers fell to 5.7% in September, compared to 6.1% in August. And the unemployment rate for Hispanic workers fell from 5.5% in August to 5.1% in September.
  • On the other hand, average weekly working hours fell by 0.1 hours to 34.2 hours in September, and the proportion of people with more than one job rose to 5.3% in September from 5.0% in the previous month.

How does the jobs report change the Fed's calculations?

Most economists now expect the Fed to slow the pace of rate cuts when it meets again on November 6 and 7, cutting rates by a quarter point rather than cutting another half point.

“The underlying health of the labor market remains better than previously thought and private job creation remains strong,” said John Choong, head of equities and markets at Investors Edge. “The Fed will also be in no hurry to cut rates as the unemployment rate is still relatively low and still far from Fed forecasts of 4.4% to 4.5%.”

Shruti Mishra, US economist at Bank of America, said: “September's landmark employment report prompted us to change our call for the November Fed meeting from a 50 basis point cut to 25 basis points.”

Some even questioned whether the Fed would cut interest rates at all in November.

“A drop in the unemployment rate to 4.1% could result in the word 'pause' entering the Fed's vocabulary again,” McDonough said.

Recovery on the US stock markets

The broad S&P 500 index, the blue-chip Dow index and the tech-heavy Nasdaq indexes all rallied on the strong jobs report, but Friday's gains are unlikely to be enough to offset losses earlier in the week on jitters over the to balance tensions in the Middle East and port strikes. All three indexes are on track to end their three-week winning streak, but many market strategists remained optimistic.

“What we have now is an economy that is growing, a job market that is solid if not strong, and a Federal Reserve that has not only stopped interest rate hikes but is actually cutting them,” said Chris Zaccarelli, Chief Investment Officer Officer at Independent Consultant Alliance. “This is an excellent backdrop for owning stocks.”

Seasonal jobs start: Amazon is hiring 250,000 seasonal workers ahead of the holiday season: What you should know about roles and pay

Will inflation return?

Inflation has trended lower, allowing the Fed to confidently focus on maximum employment, the other half of its dual mandate. Last month, interest rates were cut sharply to keep the job market strong.

Some economists worry that the Fed may have declared victory over inflation too early.

On an annual basis, average hourly wages rose to 4.0%, the highest since May and “above the recent pace of inflation, helping to restore purchasing power lost due to price increases,” said Mark Hamrick, senior economic analyst at Bankrate.

While that's good for workers, some worry that higher wages and tensions in the Middle East could fuel inflation again. Oil prices rose this week by the most in almost two years amid fears that escalating strikes between Israel, Lebanon and Iran could disrupt oil supplies.

“As oil prices rise due to rising tensions in the Middle East and average hourly wages rise, the Fed may fear that inflation is rearing its ugly head,” said Gina Bolvin, president of Bolvin Wealth Management Group. “We may be back with them, focusing on a 50/50 dual mandate” of stable prices and maximum employment.

Steve Wyett, chief investment strategist at BOK Financial, said high average hourly wages coupled with “the eye-popping dockworker pay deal (for a 62% pay increase over six years) reminds us that inflation may still be a problem for the “There are not enough dockworkers relative to the size of the workforce to have a direct impact on overall wage levels, but it appears that progress toward the Fed's 2% target may remain slow.”

Contributor: Daniel de Visé, USA TODAY.

Medora Lee is a money, markets and personal finance reporter for USA TODAY. Reach her at [email protected] and sign up for our free Daily Money newsletter every Monday through Friday morning for personal finance tips and business news.

By Vanessa

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