US September nonfarm payrolls beat expectations, unemployment rate rises to 4.4%
Data released by the US Department of Labor on Thursday showed that nonfarm payrolls increased by 119,000 in September, higher than market expectations, but the unemployment rate climbed to 4.4%, the highest level in nearly four years. Meanwhile, employment growth data for July and August were revised down by a combined 33,000. Samuel Tombs, chief US economist at Pantheon Macroeconomics, believes that the September employment data may overstate labor demand and does not constitute a reason against the Fed cutting interest rates. Fed officials are clearly divided on the policy path for December, and interest rate futures markets show a 60.2% probability of holding rates steady.
Key Points
- Data released by the U.S. Department of Labor on Thursday showed that nonfarm payrolls increased by 119,000 in September, exceeding market expectations; at the same time, a surge in job seekers pushed the unemployment rate up to 4.4%, the highest level in nearly four years.
- The Labor Department revised August employment data to a decrease of 4,000 and revised the July increase down to 72,000, with the two months combined totaling 33,000 fewer than initial estimates.
- Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, said: "We believe the September employment estimate greatly overstates the strength of labor demand," and that the data does not constitute a reason against the Federal Reserve cutting interest rates. He noted in a report: "This report keeps a December easing on the table, despite strong job growth, as the unemployment rate is rising."
In-Depth Analysis
This latest employment report, delayed by more than six weeks due to the government shutdown, may do little to narrow the debate among central bank officials over the best path for monetary policy.
Officials leaning toward a 25-basis-point rate cut at the December 9-10 meeting will cite the rising unemployment rate and other signs of labor market weakness as justification; those advocating for holding the federal funds rate steady will emphasize the surprisingly strong September job growth and the need to curb inflation above target.
Cleveland Fed President Beth Hammack said Thursday: "Cutting rates to support the labor market could prolong the current period of elevated inflation and could also encourage risk-taking in financial markets." She added in a speech: "This means that whenever the next economic downturn occurs, it could be larger and have a more severe impact on the economy than it otherwise would."
Other recent data provide ammunition for both camps of policymakers. The Labor Department's weekly initial jobless claims released the same day showed 220,000 people filed for unemployment benefits in the week ending November 15, a figure roughly in line with the trend seen so far this year.
Meanwhile, the National Federation of Independent Business (NFIB) recently said small business optimism declined in October. According to Labor Department data, small businesses accounted for 55% of net new jobs between 2013 and 2023.
Minutes from the central bank's policy meeting last month, released last Wednesday, showed participants "expressed strong divergence over which policy decision would be most appropriate at the December meeting."
Interest rate futures traders are betting the benchmark rate will remain unchanged next month. According to the CME FedWatch tool, they see a 60.2% probability that the central bank will hold its main rate steady, up from 49.9% on November 13.