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The US economy added 254,000 jobs in September, smashing expectations and prompting traders to increase bets that the Federal Reserve will lower interest rates at a slower pace after a jumbo cut last month.
The figure from the Bureau of Labor Statistics was above expectations of economists polled by Reuters of 140,000, and compared with an upwardly revised gain of 159,000 jobs in August.
The unemployment rate fell to 4.1 per cent, having come close to a three-year high in July at 4.3 per cent.
The report suggests the Fed is on course to pull off a so-called soft landing for the economy, which has weathered the worst period of high inflation in a generation while maintaining robust growth and strong employment.
The resilience of the labour market is also a boon for vice-president Kamala Harris, who is neck-and-neck in opinion polls with Republican nominee Donald Trump ahead of next month’s presidential election.
The data is “good news for American workers and families”, President Joe Biden said on Friday.
Mark Zandi, chief economist at Moody’s Analytics, said: “You couldn’t paint a prettier picture of the job market and broader economy. If this report doesn’t silence the recession fearmongers, then nothing will.”
Zandi said he expected the positive economic backdrop to be a “significant tailwind” for Harris’s bid for the White House, which is likely to remain rosy as the Fed continues to ease interest rates.
The Fed last month cut its benchmark interest rate by half a percentage point to pre-empt any significant weakening of the labour market.
After Friday’s data release, traders in futures markets bet that the Fed would opt for a smaller, quarter-point cut at its next policy meeting in November. They all but abandoned wagers that the central bank would opt for another half-point reduction, which had been seen as a roughly 35 per cent probability before the jobs figures.
Austan Goolsbee, president of the Fed’s Chicago branch, said the latest report was “superb” in an interview with Bloomberg TV.
“These numbers are a bit of a game-changer,” said Josh Hirt, senior US economist at Vanguard. “When you look at the revisions too, this changes the narrative about the underlying pace of job growth . . . overall it’s very positive.”
Treasury yields jumped shortly after the data was published. The two-year Treasury yield, which is sensitive to interest rate expectations, rose almost 0.22 percentage points to a one-month high of 3.93 per cent. The S&P 500 rallied in Friday afternoon trading to close 0.9 per cent higher, leaving it up for the fourth week in a row.
The dollar climbed 0.5 per cent against a basket of rival currencies following the data. It has risen more than 2 per cent since last Friday, putting it on course for its strongest week in more than two years.
“The market likes cuts but it doesn’t like them if they’re because of real weakness in the economy and worries about recession,” Hirt said. “It likes cuts with a positive underlying economy, which would bolster the soft landing scenario.”
Jobs growth in Friday’s report was strongest across the leisure and hospitality sector, specifically in restaurants and bars. Employment in those categories increased by almost 70,000. Healthcare jobs rose by 45,000.
Manufacturing and other industrial jobs such as in mining and oil were unchanged for the month, alongside the retail, transportation and professional and business services sectors.
Average hourly earnings increased 0.4 per cent for the month and are up 4 per cent on an annual basis.
US central bank officials are focused on the health of the labour market as they plan further interest rate cuts in the coming months after making a larger-than-usual half-point reduction in September. The move left the Fed’s benchmark rate at 4.75-5 per cent.
Fed chair Jay Powell hinted this week that the central bank would revert to its more usual quarter-point cut when it next meets in November — just after the US presidential election — as long as the economy does not deteriorate unexpectedly.
Officials have grown more confident in their ability to bring price pressures back down to the Fed’s 2 per cent target without triggering a recession. Lay-offs have not yet risen, although some economists warn that the fall in demand in recent months could be a precursor to steeper job losses.
New data on Tuesday showed that the number of vacancies unexpectedly rose in August to 8mn, but the rate at which Americans are quitting their jobs fell to the lowest level since June 2020.
The unemployment rate is up substantially from its recent low of 3.4 per cent last year, but economists largely attributed the rise to a growing workforce.
Most Fed policymakers last month forecast that the US unemployment rate would peak at 4.4 per cent this year and next, while interest rates would fall to 4.25-4.5 per cent and 3.25-3.5 per cent, respectively.
