The US economy added 254,000 jobs last month, far surpassing expectations and alleviating concerns about a faltering job market, as per the US Department of Labor. The report has also beaten Wall Street’s expectations of a substantial interest rate cut from the Federal Reserve next month, according to the New York Post.
Unemployment rate drops
The unemployment rate dipped to 4.1%, down from 4.2% the previous month, while hourly earnings rose by 4% year-on-year.Consensus estimates had predicted a gain of 150,000 jobs, a modest increase from the 142,000 reported for August. The unemployment rate had previously shown slight fluctuations, falling from an unexpected rise to 4.3% in July.
Federal Reserve Chair Jerome Powell indicated that further interest rate cuts are likely, but he emphasised a gradual approach designed to support a healthy economy. At the Fed’s last meeting on September 18, officials reduced the rate to 4.8%, down from a two-decade high of 5.3%, and projected two additional quarter-point cuts in November and December.
“If the economy performs as expected, that would mean two more cuts this year,” Powell said.
Private sector growth
Data from ADP showed that private sector companies added 143,000 jobs in September, surpassing analysts’ estimates of 125,000 and marking a rebound from August’s figure of 99,000. This increase ended a streak of five consecutive months of job declines.
Despite these positive signs, there are indications of a weakening job market. The Labour Department reported that the quits rate, a crucial measure of worker confidence, fell to 1.9% in August, the lowest since June 2020. The hiring rate also declined to 3.3%, down from 3.4% in July, the weakest rate since August 2013, excluding the pandemic.
Low layoffs
Payroll growth across most sectors suggests fewer layoffs, although hiring has slowed due to reduced demand following the Federal Reserve’s rate hikes of 525 basis points in 2022 and 2023. Average hourly earnings increased by 0.4% last month, following a 0.5% rise in August, while year-on-year wages rose by 4.0%, up from 3.9% in August. This strong wage growth makes it unlikely that the US central bank will implement another half-percentage-point rate cut at its meeting on November 6-7.
Challenges
The labour market continues to add jobs at a steady pace, allowing Americans to maintain confidence and spending, which supports the economy. However, the hiring rate has slowed significantly, with an average of 116,000 jobs added monthly from June through August, marking the weakest three-month stretch since mid-2020.
However, the economy has remained resilient, growing at a 3% annual pace from April to June, boosted by consumer spending and business investments. Federal Reserve Bank of Atlanta indicates a growth rate of 2.5% for the July-September quarter.
Economic concerns weigh heavily on voters as the presidential election on November 5 approaches. While many Americans appreciate the job market’s resilience, high prices continue to frustrate them, remaining approximately 19% above levels recorded in February 2021 when inflation began surging.