The steady pace of U.S. job growth slowed in September, but the jobless rate unexpectedly fell, bolstering expectations that the Federal Reserve will raise interest rates by 0.75 percentage point at its next meeting in November.
Biggest in the world economy added 263,000 jobs last month, according to the Bureau of Labor Statistics, less than the 315,000 jobs created in August and well below July’s increase of 537,000. So far in 2022, monthly job growth is averaging 420,000, down from the average monthly pace of 562,000 in 2021.
Despite the slowing pace of growth, the jobless rate is back to its pre-pandemic low of 3.5%, as the share of Americans either employed or looking for work fell slightly.
“The story is that a 0.75 percentage point hike in November is likely,” said Tiffany Wilding, North America economist at Pimco. “The Fed needs to keep tightening.”
U.S. central bank officials are actively debating whether a fourth straight jumbo rate hike is needed next month or whether they can potentially downgrade to raise rates in half-point increments. So far this year, the Fed has raised its key rate from near zero to a range of 3% to 3.25%.
Fed funds futures traders have now priced the odds of that most aggressive outcome at 81%, according to CME Group, up from 75% before Friday’s release.
The data comes just days after figures showed employers deleted more than a million job offers in August – one of the biggest monthly declines in two decades. This caused the ratio of vacancies to unemployed to drop from 2 to 1.7.
However, workers are still quitting at a high rate, suggesting that labor supply and demand are still out of balance.
Futures for the S&P 500 fell 1.2% in premarket trading on Friday, after being roughly flat before the data was released. The two-year US Treasury yield, which is sensitive to changes in political expectations, rose 0.06 percentage points to 4.31%.
US central bank officials have predicted that their efforts to rein in the worst inflation in four decades will require not only an extended period of “below-trend” growth, but also job losses. A recession cannot be ruled outrecently warned Fed Chairman Jay Powell.
According to the latest projections released by the Fed last month, policymakers’ median forecast for the unemployment the rate shows that it will only reach 3.8% by the end of the year before jumping in 2023 to 4.4% and remaining at this level until 2025.
Officials argued that inflation can be tamed without a more substantial rise in unemployment, not least because employers may be reluctant to downsize given the scale of the labor shortage since the start of the pandemic.
In September, the so-called labor force participation rate still remained below its pre-pandemic level, at 62.3%. The overall labor force fell slightly by 57,000 people.
The leisure and hospitality industry led the job gains, which added 83,000 jobs, followed by an increase of 60,000 jobs in the healthcare sector.
The still-tight labor market — and ensuing wage gains as companies try to attract new hires and retain old ones — is a major concern for the Fed, which is actively trying to restrain demand and cut costs. price pressures through oversized interest rate increases. .
Average hourly earnings in September rose at the same rate of 0.3% as in the previous period, translating into an annual jump of 5%.
By the end of the year, most officials expect the federal funds rate to hover between 4.25% and 4.5%, with further rate hikes in early 2023. The benchmark policy rate is expected to peak just above 4.5%. They also have underline that the Fed is not yet considering a pause in its rate hike cycle even as signs of stress begin to appear in the financial system and the global economic outlook deteriorates.