US adds 336,000 jobs in September, unemployment at 3.8% – Twin Cities

The nation’s employers added 336,000 jobs in September, an unexpectedly strong gain and the biggest monthly increase since January, evidence that many companies remain confident enough to keep hiring despite high interest rates and a murky outlook for the economy.

Job growth last month jumped from a 227,000 increase in August, which was revised sharply higher. The increase in July was also larger than initially expected. The economy has added an average of 266,000 jobs over the past three months, a streak that could make it more likely that the Federal Reserve will raise the key rate again before the end of the year, continuing efforts to contain inflation.

Friday’s report from the Labor Department also showed the unemployment rate was unchanged at 3.8%, not much above a half-century low.

The labor market has faced a number of threats this year, notably high inflation and the Fed’s rapid series of interest rate hikes, which have been aimed at defeating it. Although the Fed’s credit hikes have made it much more expensive, steady job growth has boosted consumer spending and kept the economy growing, defying long-standing predictions of a coming recession.

The jobs data is forcing Chairman Jerome Powell and other Fed policymakers to make some tough decisions. Solid hiring could prompt them to raise the key rate in November or December, as the strong job gains suggest the economy is growing too fast for inflation to cool.

By raising borrowing costs, the Fed intends to slow business and consumer spending.

Still, some data in Friday’s jobs report raised the possibility that inflation could still ease even as hiring remains healthy. It is noteworthy that wage growth slowed down in September: the average hourly wage increased by 4.2% compared to last year. That’s still a solid figure and slightly above inflation, but it’s the lowest in more than two years.

The Fed was concerned that if wages rose too fast, companies would raise prices to cover higher labor costs, thereby fueling inflation. A slower rate of wage growth in September could help allay those concerns.

In addition, long-term interest rates have jumped in the past two months, making credit more expensive across the economy and potentially acting as a drag on economic growth and inflation. Mortgage rates jumped to 7.5%, the highest level in 23 years.

“It’s a pretty solid report, and perhaps makes the Fed a little more nervous given the overall strength of the labor market,” said Sarah House, senior economist at Wells Fargo. But a jump in interest rates “does part of the Fed’s job, and that makes another hike less compelling.”

Other threats to the economy have also emerged in recent weeks, including the resumption of student loan payments, expanding labor strikes and the ongoing threat of a government shutdown. It’s possible that these concerns could help convince the Fed to keep rates unchanged for the rest of the year.

Most major industries added jobs last month, from health care, which gained 66,000, to manufacturing, which added 17,000, to retail, which added nearly 20,000. Professional services, a category that includes engineers and architects, gained 21 thousand.

Government at all levels added 73,000 jobs, reflecting healthy budgets for most state and local governments.

The main reason for the slowdown in wage growth is the influx of new workers into the labor market, partly as a result of increased immigration. The share of people who either have a job or are looking for one has risen or stayed the same for 11 consecutive months, House said. With more workers, employers feel less pressure to raise wages

“This is a sign that supply and demand in the labor market are becoming better balanced,” said Bill Adams, chief economist at Comerica Bank.

Sarah Tilley, senior vice president of business software provider ServiceNow, sees the balance improving as her company looks to hire more software engineers and people with artificial intelligence and machine learning skills. The company is also looking for additional customer support staff.

Some of these jobs just got easier to fill. The number of applications is up 80% from a year and a half ago, she said, and some of that increase is likely the result of mass layoffs at tech companies last year.

“There is a healthy competition for talent,” she said. “Competing for experienced talent was ridiculously difficult to downright difficult.”

Another change from last year, she noted, is that even workers with technical skills are less likely to jump the gun for big raises.

“People would jump to get these real meat augmentations,” she said. “And it changed. People are less inclined to take risks.”

The Fed’s inflation fighters have been scrutinizing every piece of data to determine whether to raise the key rate again this year. On Thursday, Mary Daly, president of the Federal Reserve Bank of San Francisco, said the Fed could hold off on raising rates if the labor market continues to slow and inflation continues to decline.

Last week, the Fed’s closely watched price gauge showed that core inflation slowed, the latest sign that overall price pressures are still easing.

“If we continue to see the labor market cool and inflation return to our target, we will be able to hold interest rates steady and allow policy implications to continue to work,” Daly said in a note to the Economic Club of New York.

Job growth has held steady for most of the past 2 1/2 years, even after high inflation erupted and the Fed raised interest rates at its fastest pace in four decades. The Fed’s benchmark rate is at a 22-year high of about 5.4% after 11 hikes starting in March 2022.

On the one hand, Fed officials, including Powell, have stressed that inflation remains too high above the 2% target and that another rate hike may be needed to slow it to that level. At the same time, several Fed chiefs have stressed that they want to be careful not to raise borrowing rates so much as to trigger a deep recession.

After a spring period when traders seemed to expect the Fed to quickly reverse course and cut interest rates, financial markets now accept that the central bank will keep its key rate high until 2024. That’s one reason why yields on 10-year Treasuries have risen since July and topped 4.8% on Friday after the report was released, a 16-year high.

The 10-year yield is the benchmark rate for other borrowing costs, including mortgages, auto loans and business loans. Higher yields, in turn, have punished stocks, with the S&P 500 down 7.2% since the end of July.

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