Payrolls increased by 336,000 in September, much more than expected

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Job growth was stronger than expected in September, a sign that the U.S. economy is hanging tough despite higher interest rates, labor strife and dysfunction in Washington.

Nonfarm payrolls increased by 336,000 for the month, better than the Dow Jones consensus estimate for 170,000, the Labor Department said Friday in a much-anticipated report. The unemployment rate was 3.8%, compared to the forecast for 3.7%.

Stock market futures turned sharply negative following the report and Treasury yields jumped. Dow futures were down more than 250 pints, while the 10-year Treasury yield soared 0.17 percentage point to 4.87%, up around its highest levels since the early days of the financial crisis.

Investors have been on edge lately that a resilient economy could force the Federal Reserve to keep interest rates high and perhaps even hike more as inflation remains elevated.

Wage increases, however, were softer than expected, with average hourly earnings up 0.2% for the month and 4.2% from a year ago, compared to respective estimates for 0.3% and 4.3%.

Still, traders in the fed funds futures market increased the odds of a rate increase before the end of the year to about 44%, according to the CME Group’s tracker.

“Clearly it’s moving up expectations that the Fed is not done,” said Liz Ann Sonders, chief investment strategist at Charles Schwab. “All else equal, it probably moves the start point for rate cuts, which has been a moving target, to later in 2024.”

Sonders said the bond market is “in the driver’s seat” as far as stocks go, a trend that accelerated earlier in the week after the Labor Department reported a jump in job openings for August.

From a sector perspective, leisure and hospitality led with 96,000 new jobs. Other gainers included government (73,000), health care (41,000) and professional, scientific and technical services (29,000). Motion picture and sound recording jobs fell by 5,000 and are down 45,000 since May amid a labor impasse in Hollywood.

In addition to the powerful September, the previous two months saw substantial upward revisions. August’s gain is now 227,000, up 40,000 from the prior estimate, while July went to 236,000, from 157,000. Combined, the two months were 119,000 higher than previously reported.

The labor force participation rate, or those working against the total size of the workforce, held steady at 62.8%, still a half percentage point below the pre-Covid pandemic level. A more encompassing measure of unemployment that includes discouraged workers and those holding part-time positions for economic reasons edged down to 7%.

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