NEW YORK, Oct 2 (Reuters) – US job growth slowed more than expected in September, fueling a bounce in stocks and bonds and a further retreat in market expectations for a Federal Reserve rate increase this month.
Nonfarm payrolls increased by 29,000 jobs last month after a downwardly revised 133,000 rise in August, the Labor Department’s closely watched employment report showed on Friday. Economists polled by Reuters had forecast payrolls advancing 90,000 after a previously reported 162,000 surge in August.
Volatility linked to seasonal adjustment factors, the model the government uses to strip out seasonal fluctuations from the data, probably accounted for both the meager payroll gains last month and the downward revision to August’s count.
Payrolls have a tendency to underperform when the Labor Day holiday falls late in the month, as was the case this year, economists noted. There have been no signs of a broad increase in layoffs. First-time applications for unemployment benefits have been hovering at 57-year lows amid robust corporate profit growth and resilient domestic demand.
Economists, however, expected that growing headwinds from the US-Israel war with Iran, including high energy prices and strained supply chains, would start disrupting the labor market by the end of this year and into 2027.
The unemployment rate increased to a still-low 4.2% last month from 4.1% in August. The unemployment rate is being kept low as retirements and the Trump administration’s immigration crackdown reduce labor supply.
REACTION:
STOCKS: Major U.S. indexes rose modestly after the report. Futures tracking the S&P 500 were up 0.9% and those tracking the Nasdaq composite were up 1.3%.
BONDS: U.S. Treasury yields fell on the news. The 2-year Treasury yield, most sensitive to the market’s expectations of Fed rate action, fell 6 basis points to 4.725%. The 10-year Treasury yield fell 5 basis points to 5.182%. The 30-year yield was down 3 basis point to 5.573%. Rate-hike expectations for this month’s meeting fell as low as 12% before ticking back up to a recent 19%.
FOREX: The dollar index fell 0.1% to 101.9.
COMMODITIES: The gold price rose 0.8% to $4,210.
COMMENTS:
CHRISTOPHER HODGE, CHIEF US ECONOMIST, NATIXIS, NEW YORK:
“Labor data for September disappointed, coming short of expectations, but doesn’t represent much more than the normalization of an existing trend. Payrolls rose just 29k, falling from the (revised lower) print of 133k in August, and the broad trend suggests still that the labor market is solid, but unspectacular.
“The three-month rate of payroll gains stands at 51k while the yearly gains averages 41k, both above most estimates of breakeven rates that would stabilize unemployment. The unemployment rate rose a touch and now rounds to 4.2% on the back of higher participation – a positive sign.”
LINDSAY ROSNER, HEAD OF MULTI-SECTOR FIXED INCOME INVESTING AT GOLDMAN SACHS ASSET MANAGEMENT, NEW YORK:
“October seems unlikely. Today’s soft print argues against the idea that the labor market is retightening. One follow-up hike in December remains our base case; however, continued pressure by markets and moves higher in energy prices could force the Fed’s hand this month as well.”
TIM HOLLAND, CHIEF INVESTMENT OFFICER, ORION, OMAHA, NEBRASKA:
“It would seem – at least as of this morning – that bad news is once again good news on Wall Street, as stock futures are sharply higher following a jobs report that came in well below expectations and an unemployment rate that came in above expectations. Our immediate reaction is that investors, while appreciating the need for the Federal Reserve to raise rates in September and maintain a hawkish policy stance in the face of still too high inflation, are worried that the Fed might raise rates too far, and too quickly. We would think today’s jobs report and unemployment rate buys the Fed some time on the rate hiking front, and that is welcomed news on Wall Street.”
GARY SCHLOSSBERG, GLOBAL STRATEGIST AT WELLS FARGO INVESTMENT INSTITUTE, GREENBRAE, CALIFORNIA:
“The employment report came in weaker than expected, perhaps indicating some loss of momentum by the economy coming into the fourth quarter of the year. We did have a very strong payroll number in August, and this may be a reaction to it. It definitely lessens the risk of an October rate hike. We’re still focused on the December meeting itself.
“The household employment number showed a very big increase, but an even larger increase in the labor force, which is the denominator in the unemployment rate. That meant we had an uptick in the unemployment rate. The unemployment rate really masks strength in that household-based measure, which diverged from the disappointing payroll number.
“It looks like wage inflation slowed again last month, slowing for the third straight month. That could mean some pressure on household purchasing power. The real strength we saw in consumer spending in August may have lost a step or two in September, based on that pressure on incomes.”
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK:
“It’s a cooler number than expected, but a number that suggests that the labor market remains in a growth mode. And without any inflationary wage pressures, which is a positive.
“Unemployment ticking up, I wouldn’t worry about that. That’s probably because of the participation rate picking up a bit.
“The bottom line is, this is a report that’s going to be friendly to the markets. It may help cool the rise in yields. It suggests that the Fed doesn’t have to worry about wage inflation, and along with the cooler than expected PCE price index that we got the other day, it suggests that the Fed could likely remain on hold for the October meeting.”
TODD SCHOENBERGER, CHIEF INVESTMENT OFFICER, CROSSCHECK MANAGEMENT, WASHINGTON, DC:
“The lower jobs print including the revision is, oddly enough, good news for stocks. With the bond market organically doing the job of the Fed recently, we needed to sacrifice a headline metric and this morning’s report accomplished the goal. Average hourly earnings down a tick helps relieve the inflation headache, albeit only in the short-term. Stocks will celebrate this news today even though Main Street has a legitimate reason to be concerned about job growth.”
BRIAN JACOBSEN, CHIEF ECONOMIC STRATEGIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN:
“This wasn’t a firecracker of a report; it was more like a dud.
“The labor market wasn’t as strong as we originally thought it was. July was revised back to a negative number, there was a decent bounce in August, but the bounce then fell flat with a mere +29,000 gain in September.
“The diffusion indexes dropped back below 50. Chair Warsh was concerned about the breadth of inflation, but now he’ll have to consider the lack of breadth in the labor market. This statement supports an October pause.”
(Reporting by Lucia Mutikani, Saeed Azhar, S. Siddarth, Tharuniyaa Lakshmi, Laura Matthews, Stephen Culp, Sashwat Chauhan, Chuck Mikolajczak; editing by Colin Barr)
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