Evidence of stronger hiring over the summer and the lowest unemployment rate in 50 years were offset by signs of a slowdown in wage growth during September, according to the latest update on the health of the US labour market.
Non-farm payrolls rose by a net 136,000 last month from an upwardly revised 168,000 in August, according to data from the Bureau of Labor Statistics on Friday.
That fell short of the median forecast for 145,000, according to a Refinitiv survey of economists, but the BLS also bumped up its employment figures for July by 7,000, to a gain of 166,000, suggesting more buoyant conditions over the summer.
The manufacturing sector lost 2,000 jobs overall in September, while the pace of hiring in the much-larger services sector slowed. The retail sector shed 11,000 jobs, concentrated primarily in clothing stores, which could reflect a continuing shift towards online shopping. Bars and restaurants, meanwhile, added 2,000 jobs. While hiring in that sector can be volatile, eating out can signal how confident consumers are about splurging.
The unemployment rate fell to 3.5 per cent, its lowest point since December 1969, and down from 3.7 per cent in August.
Growth in average earnings cooled in September to its slowest rate in more than a year to an annual pace of 2.9 per cent, down from 3.2 per cent in August and undershooting forecasts for it to remain steady.
Speaking at an event at the boardroom of the Federal Reserve on Friday, chairman Jay Powell said the US economy was “in a good place” and stressed the importance of “sustaining our historically strong job market”.
Unemployment has run below the Fed’s long-term projections for more than two years, making businesses more creative at finding and keeping employees.
“People from low- and moderate-income communities tell us this long recovery, now in its 11th year, is benefiting them and their neighbours to a degree that has not been felt for many years,” he said. “Employers are partnering with community colleges and non-profit organizations to offer training. And people who have struggled to stay in the workforce in the past are getting new opportunities.”
US stocks rallied following the release of September’s jobs report and by mid-afternoon in New York the S&P 500 was up over 1 per cent. The technology-heavy Nasdaq Composite was up 1.2 per cent.
After a significant move lower in yields on Thursday following a spate of worse than expected economic data, US Treasuries reversed course after the report. Yield on the policy-sensitive two-year Treasury bill climbed roughly 3 basis points to 1.4 per cent in the immediate wake of the jobs report, while the yield on the benchmark 10-year note steadied at 1.5 per cent. Yields move inversely to price.
“I would present this as cooling but not frozen,” said Greg Daco, chief US economist at Oxford Economics, of the payrolls data. “We have businesses that are a bit more cautious when it comes to hiring, that are cautious when it comes to implementing large wage increases because of their limited ability to pass on higher costs, and yet, they’re still in need of hiring employees.”
A string of disappointing manufacturing and services sector data across Asia, Europe and the US triggered a sharp stock market sell-off this week and a rally in government bonds.
Wall Street stabilised on Thursday, though, as investors warmed to the idea the poor data could prompt the Fed to ease monetary policy again this year, even though its most recent forecasts implied it would not. Markets are pricing in a 77 per cent chance of a 25bp interest rate cut at the Fed’s October meeting, nearly double the level of a week ago.
The Fed has described the labour market this year as “high-pressure”, with unemployment consistently below long-term estimates. For the past year, people have returned to the workforce, and businesses have considered a wider field of applicants and paid for training. The labour force participation rate for prime working-age men and women hit 82.6 per cent in August, a post-recession high, and was steady in September.
Over the summer, Fed policymakers including chairman Jay Powell have increasingly mentioned the benefits of a high-pressure labour market, as the Fed’s preferred inflation measure remains consistently below its target of 2 per cent.
September’s employment data will be closely watched by the Fed, which at its last meeting lowered short-term interest rates but indicated it had already eased to reflect trade tensions, and was awaiting further data.
Mr Powell will speak at an event in Washington on Friday.
According to Kevin Cummins, the senior US economist at NatWest Markets, the jobs report points to employment growth that has slowed, but has not yet “collapsed”.
In light of the worse than expected data in the lead-up to Friday’s release, Mr Cummins said the Fed was likely to move not only at the end of the month, but again in December.
For Randy Frederick, vice-president of trading and derivatives at Charles Schwab, the Fed’s future path of monetary policy hinges on the outcome of this month’s trade negotiations between the US and China.
“What the economy needs more than anything else is certainty on trade,” he said. “Because we are unlikely to get that, it drives the need for interest rate cuts.”
US President Donald Trump, who is battling an impeachment inquiry launched by House Democrats even as he spars with China over trade, gave himself credit for the low unemployment rate in a tweet on Friday morning after the report.
“Breaking News: Unemployment Rate, at 3.5%, drops to a 50 YEAR LOW. Wow America, lets impeach your President (even though he did nothing wrong!).”
