Monthly change in jobs (each broken line marks 2%)

 

jobs +263,000 in September

Data is seasonally adjusted.

Source: Bureau of Labor Statistics

The labor market remained strong in September, showing its resilience. But the persistent strength in hiring also underscored the challenges facing the Federal Reserve as it tries to curtail job growth enough to tame inflation.

Employers added 263,000 jobs last month on a seasonally adjusted basis, the Labor Department said Friday. That was down from 315,000 in August. The unemployment rate fell to 3.5 percent, from 3.7 percent a month earlier.

“If I had just woken up from a really long nap and seen these numbers, I would conclude that we still have one of the strongest job markets that we’ve ever enjoyed,” said Carl Tannenbaum, chief economist at Northern Trust.

Labor participation was little changed in September, at 62.3 percent, around where it has hovered for the duration of the year but still below where it was before the pandemic. Wages rose 0.3 percent, matching the prior month’s gain.

The Federal Reserve’s next rate decision is scheduled for Nov. 2, and officials have emphasized that the central bank is watching the jobs data closely as they determine how aggressive to be. They are eager to see evidence that interest-rate increases are cooling off a frenzied labor market, but not enough to tip the economy into a recession. For months, job growth defied expectations, as employers continued to add workers despite increased borrowing costs.

More recently, there have been indications that employers are beginning to rein in hiring. The number of job openings decreased in August, to 10.1 million from 11.2 million in July. Filings for unemployment benefits last week rose modestly. Companies, including Walmart and Amazon, have announced slowdowns in hiring, while others, including FedEx, have frozen hiring altogether.

“The labor market has been a Ferrari the last year and a half,” said Nick Bunker, director of North American economic research for the career site Indeed. “It’s slowing down but still moving very, very quickly.”

The report is the second-to-last before the midterm elections, and both parties are almost certain to seize on the data to make the case that they are the best stewards of the economy.

Jeanna Smialek contributed reporting.

The S&P 500 recorded its worst day since mid-September, falling 2.8 percent on Friday, dragged down by interest rate-sensitive sectors like technology stocks, though more than 95 percent of the stocks in the index ended the day in the red.

The Nasdaq Composite index, heavily weighted toward tech-stocks, fell 3.8 percent, while government bond yields, indicative of the future path of interest rates, rose and the dollar strengthened.

American employers added 263,000 jobs in September, down from 315,000 in August, the Labor Department said early Friday. While the slight slowdown in hiring offered another signal that the Fed’s efforts to cool the economy and reduce inflation were having an effect, it was balanced against a drop in the unemployment rate to 3.5 percent from 3.7 percent, reinforcing a sense that the labor market remains robust.

While that is typically positive, at the moment a resilient labor market is bad news for investors, as it points to the need for the Fed to raise interest rates even more than it already has. Higher rates, in turn, raise costs for companies, weighing on stock prices.

“At this point, the market is looking for any reason for the Fed to blink,” said Ian Lyngen, an interest rate strategist at BMO Capital Markets. “This report didn’t give it to us.”

Despite Friday’s drop, a rally on Monday and Tuesday left the S&P 500 1.5 percent higher for the week, after three straight weeks of losses. Some investors had started to consider the idea that the Fed might veer from its path of higher interest rates, as economic data had begun to show the economy cooling.

But policymakers quickly dashed any expectation of an immediate policy shift in the run-up to Friday’s data release, cautioning against the idea that the Fed’s fight against inflation was nearly over. For investors, the fresh numbers confirmed what they had already been told.

Market expectations of how much the Fed will raise interest rates when officials meet in November nudged upward on Friday, predicting another three-quarter-point increase. Such an increase was seen as unusually large not long ago. But if the Fed raises rates by that much next month, it would be the fourth time this year that it’s done so.

“I would say this is what the Fed is going to do,” Andrew Brenner, the head of international fixed income at National Alliance Securities, said of forecasts for another aggressive Fed rate increase. He added that it would take a significant slowdown in consumer prices — a widely watched gauge of inflation — when the latest data is released next week to alter policymakers’ path. “I don’t see anything to deter them at this point.”

The Fed has already raised interest rates rapidly this year, alongside other central banks around the world. They are all fighting high inflation, stemming from the reopening of economies after the start of the pandemic, and amplified by soaring energy prices after Russia’s invasion of Ukraine.

The consensus among investors is for interest rates to rise another 1.25 percentage points before the end of the year, reaching a peak around 4.6 percent next year, in line with Fed policymakers’ forecasts. But investors continue to bet that an economic slowdown, alongside falling inflation, could prompt the central bank to begin lowering rates before the end of 2023, sooner than Fed officials have forecast.

The concern is that a more sustained period of higher interest rates could destabilize the financial system, leading to the kinds of whipsaw price movements that sent shock waves through British government bond markets last month.

One measure of the ferocity of price movements, or “volatility,” in the U.S. government bond market closed out the week near levels last seen during the worst of the pandemic-induced sell-off in March 2020. Stock price volatility also remains elevated, according to the CBOE’s Vix Volatility Index, otherwise known as Wall Street’s “fear gauge.”

The Fed “would like to slow down,” said Ellen Zentner, the chief U.S. economist at Morgan Stanley. “It’s dangerous when you go at this speed for too long. But I think this report is another piece of evidence that they are going to deliver another outsized hike in November.”

Investors will be watching for clearer signs on how higher interest rates are affecting corporate profits as quarterly earnings reports for the third quarter ramp up next week. As things stand, the S&P 500 remains more than 23 percent below where it started the year.

Elsewhere on Friday, Europe’s Stoxx 600 index slumped 1.2 percent, Japan’s Topix dipped 0.8 percent and China’s CSI 300 fell 0.6 percent.

Wage growth remained strong in September, a sign of continued labor market strength that is likely to keep the Federal Reserve squarely focused on fighting inflation in the months ahead.

Average hourly earnings climbed 5 percent from a year earlier, the Labor Department reported, roughly matching economists’ expectations but slowing down slightly from the prior annual reading. Wages had climbed 5.2 percent in the year through August.

On a monthly basis, wages rose 0.3 percent, matching both economists’ expectations and the prior month's gain.

Wage growth is failing to keep up with inflation, but it has remained fast enough that central bankers see it as a sign that they have more work to do when it comes to cooling off the economy. As long as wages are climbing rapidly, it will be difficult for inflation to moderate toward the central bank’s 2 percent goal because employers are likely to continue raising prices to cover increasing labor costs without losing profits.

Officials have been carefully eyeing labor market strength and trying to determine when rapid pay gains will slow, but continued solid hiring and a very low unemployment rate have suggested that tight employment conditions will last for some time.

“In a market with more job openings than workers, the competition to fill vacancies is leading to rapid wage gains now, and the resulting salary compression may lead to further upward wage pressures in the future,” Philip N. Jefferson, another Fed governor, said in a speech this week.

Fed officials have raised interest rates five times this year, with jumbo-size three-quarter-point moves at each of their last three meetings, as they move aggressively to slow spending and the job market and tame the fastest price increases in four decades. Central bankers have signaled in speeches this week that they remain resolute in trying to wrestle inflation lower, and that they are waiting for clear signs that the economy is headed back toward price stability before they pull back from that effort.

“These data do not change the near-term course of monetary policy,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, wrote after Friday’s employment report.

While some parts of the economy are regaining their prepandemic levels, others have started to show weakness as consumers pull back on spending in the face of financial instability.

Health care is the latest industry to recover to its size in February 2020, adding 60,000 jobs last month. Reflecting a continuing shift away from residential facility-based care for older people, employment in nursing homes is down by 346,000 since the beginning of the pandemic, while home health care services have added about 34,000 jobs. Child day care services, considered crucial for the ability of parents to go to work themselves, shed jobs for the second month and is still down by more than 100,000 since the start of the pandemic.

Leisure and hospitality continued to grow as well, but remains 6.7 percent below where it stood before the coronavirus restricted travel and group social activity. There are some indications that the sector may require fewer jobs over the long term, as many hotels have cut back on daily room cleanings and not called back all of their workers, even as room occupancy has bounced back.

Construction continues to defy rising interest rates that have deeply depressed home builder sentiment and started to reduce the number of new homes under construction. While employment in residential construction stalled, the sector overall added 19,000 jobs in September, mostly for specialty trade contractors who work in remodeling, maintenance, and site preparation.

Manufacturing continued its robust rebound, climbing to nearly 100,000 jobs above its employment level in early 2020, when growth had been sputtering. The growth mainly came from auto manufacturers, while furniture manufacturing, which is tied to the housing industry, slowed. Rising interest rates could suppress exports and domestic purchases of large durable goods, but this may be offset by new federal support for production of semiconductors and wind and solar installations.

Retail hiring was basically flat and jobs in trucking dropped sharply, falling by more than 11,000 positions. This reflected the slowdown in businesses that sell and transport goods, where spending growth has been easing for months as consumers shifted from purchases of products to outlays on travel, meals and entertainment.

White-collar industries saw workers continue to return to the office, as children went back to school and more workplaces required in-person attendance. Only 5.2 percent of people worked remotely in September, down from 6.5 percent the previous month, but some economists have questioned the reliability of these figures because many people might still be working remotely but no longer cite the pandemic as the reason.

The labor participation rate was little changed.

Share of people who are in the labor force (employed, unemployed but looking for work or on temporary layoff)

Labor force participation was little changed in September, showing that the share of Americans who are working or looking for work continues to flatline at a level well below what was normal before the pandemic — and that the rebound that policymakers and employers alike have been hoping for remains elusive.

Participation ticked down slightly to 62.3 percent from 62.4 percent in August, the Labor Department reported, keeping it at the level it has hovered around for most of 2022. In February 2020, the month before the pandemic began to seriously weigh on the labor market, participation stood at 63.4 percent.

Monetary policymakers spent much of last year hoping that as the coronavirus became less deadly and schools and day care centers reopened, workers who were lingering on the job market’s sidelines would return. That has happened only slowly, and progress in pushing participation higher appears to have stalled in recent months.

“Labor force participation has recovered more slowly than expected and has largely moved sideways this year,” Lisa D. Cook, a Fed governor, said in a speech on Thursday.

With a dearth of available workers, employers have been scrambling to hire, and job openings far outnumber applicants. That has helped to push pay up — albeit not quickly enough to cover inflation. Still, with wages growing briskly, it is likely that employers will continue to charge their customers more to cover rising labor bills.

While central bankers at the Fed had initially hoped that a rebound in labor supply would help to alleviate labor shortages and bring the job market back into balance, that possibility becomes more tenuous with each passing month of participation rate stagnation.

“If the health impact of Covid-19 continues to diminish, I am optimistic that more workers will re-enter the labor force, but there is a risk that labor supply remains below its prepandemic trend,” Ms. Cook said this week.

 

Image

A Biggby Coffee store in Sterling Heights, Mich. Until recently, staffing shortages at some locations were so severe that many of the chain’s 300-plus stores had to close early some days.Credit...Sarah Rice for The New York Times

 

 

Even before the government releases its monthly payroll figures on Friday, there were signs that the red-hot labor market may be coming off its boiling point.

Wage growth has slowed. Fewer Americans are quitting their jobs than were doing so earlier this year, a sign that the period of rapid job switching, sometimes called the Great Resignation, may be nearing its end. Major employers such as Walmart and Amazon have announced slowdowns in hiring; others, such as FedEx, have frozen hiring altogether.

Taken together, those signals point to an economic environment in which employers may be regaining some of the leverage they ceded to workers during the pandemic months, Sydney Ember and Ben Casselman report for The New York Times.

That is bad news for workers, particularly those at the bottom of the pay ladder who have been able to take advantage of the hot labor market to demand higher pay, more flexible schedules and other benefits.

But for employers — and for policymakers at the Federal Reserve — the calculation looks different. A modest cooling would be welcome after months in which employers struggled to find enough workers to meet strong demand, and in which rapid wage growth contributed to the fastest inflation in decades.