Employers added 254,000 jobs in September, blowing away forecasts

Economists predicted that 140,000 new jobs would be created in September but employers added 254,000, significantly exceeding forecasts and reversing the hiring slowdown that led the Federal Reserve to implement a substantial rate cut last month.

The employment report is signaling signs of strength in the labor market heading into the height of the election season, as the unemployment rate fell to a three-month low of 4.1 percent.

The payroll gain, the biggest advance since March, was led by leisure and health care

The employment report marks the second-to-last reading on the labor market before the Federal Reserve’s November 7 rate decision meeting, when the central bank is expected to once again cut its benchmark rate. The Fed last month made a jumbo cut, its first rate reduction in four years, in the face of weakness in hiring and a cooling economy.

But September’s surprisingly strong hiring suggests that the U.S. could be headed for a so-called “soft landing,” with the Fed’s prior rate hikes having helped to cool the economy while skirting a recession, experts said.

The last six months of steady job growth has been plenty enough to keep the labor market firmly out of recession territory, economists say, especially as GDP growth remains hardy, productivity is strong and consumers continue to spend.

“This is what an economy at full employment looks like in an economy best described as robustly expanding,” said Joe Brusuelas, chief economist at RSM U.S. LLP.

Brusuelas said that September jobs report data supports a quarter point interest rate cut by the Federal Reserve next month.

The report reflects a survey that the Bureau of Labor Statistics conducted before the Fed lowered interest rates last month.

The data also does not reflect disruptions caused by Hurricane Helene, an ongoing labor strike at Boeing, and a brief but disruptive work stoppage at the East Coast and Gulf ports this week that ended yesterday. Those labor market changes will show up in the jobs report out days before the November presidential election.

Wage gains were also surprisingly robust, growing by 0.4 percent over the month. Average hourly earnings have risen by 4 percent this year, to $35.36. an hour, outpacing the rate of inflation, resulting in a boost to workers’ pocketbooks.

Strong upward revisions to job gains in July and August data also suggest that the labor market is healthier than previously thought.

“This was a very encouraging payroll report, with job growth handily beating expectations,” Sonu Varghese, Global Macro Strategist at Carson Group in an analyst note. “The fact that inflation is easing at the same time means productivity growth is strong, and that should keep the Fed on track for more rate cuts – an added tailwind for the economy and markets.”

The increase in job were spread throughout a variety of industries, including restaurants and bars, healthcare, social assistance, construction and government.

The weaker jobs reports from this summer partly played a role prompting policymakers at the Federal Reserve to reduce interest rates by a half of a percentage point for the first time since 2020.

That cut, which is lowering borrowing costs, is expected to bring relief to households and businesses eager to take out loans. But it won’t immediately trigger a rebound in job creation, economists say, as sectors react differently to easing financial conditions. Industries weighed down by higher rates, such as professional and business services, information and manufacturing are expected to regain their vigor.

By historic measures, layoffs and the unemployment rate remain low. But the labor market is softer than it was in the period leading up to the pandemic. The rate of hiring is tied for the slowest pace in a decade, excluding the pandemic shutdown, according to a job openings report released Tuesday. Workers are quitting their jobs at the lowest rate since June 2020, according to data from that report.

Many economists have been watching to figure out whether the labor market slowdown is signaling a rebalancing of labor market dynamics or an impending recession.

“The inability of hiring to keep up with rising labor force participation has led to the rising unemployment we’ve seen since early 2023,” said Kevin Rinz, a senior fellow at the nonprofit Washington Center for Equitable Growth, in a written note. “It will be interesting to see how long the labor force will continue to grow in the face of slower hiring.”