NEW YORK, Oct 2 (Reuters) – US job growth slowed more than expected in September, fueling a bounce in stocks and bonds and a further retreat in market expectations for a Federal Reserve rate increase this month.
Nonfarm payrolls increased by 29,000 jobs last month after a downwardly revised 133,000 rise in August, the Labor Department’s closely watched employment report showed on Friday. Economists polled by Reuters had forecast payrolls advancing 90,000 after a previously reported 162,000 surge in August.
Volatility linked to seasonal adjustment factors, the model the government uses to strip out seasonal fluctuations from the data, probably accounted for both the meager payroll gains last month and the downward revision to August’s count.
Payrolls have a tendency to underperform when the Labor Day holiday falls late in the month, as was the case this year, economists noted. There have been no signs of a broad increase in layoffs. First-time applications for unemployment benefits have been hovering at 57-year lows amid robust corporate profit growth and resilient domestic demand.
Economists, however, expected that growing headwinds from the US-Israel war with Iran, including high energy prices and strained supply chains, would start disrupting the labor market by the end of this year and into 2027.
The unemployment rate increased to a still-low 4.2% last month from 4.1% in August. The unemployment rate is being kept low as retirements and the Trump administration’s immigration crackdown reduce labor supply.
REACTION:
STOCKS: Major US indexes rose modestly after the report. The S&P 500 opened higher by 0.9% and the Nasdaq composite rose 1.2%.
BONDS: U.S. Treasury yields fell on the news. The 2-year Treasury yield, most sensitive to the market’s expectations of Fed rate action, fell 3 basis points to 4.758% after earlier falling as much as 8 basis points. The 10-year Treasury yield fell 3 basis points to 5.205%. The 30-year yield was down 1.6 basis point to 5.588%. Rate-hike expectations for this month’s meeting fell as low as 12% before ticking back up to a recent 21%.
FOREX: The dollar index fell 0.1% to 101.9.
COMMODITIES: The gold price rose 0.8% to $4,210.
COMMENTS:
GREG TAYLOR, CHIEF INVESTMENT OFFICER AT PENDERFUND CAPITAL MANAGEMENT, TORONTO:
“That’s actually going to be really good for markets because the fear had been that we’re going to have to have another interest rate hike in October. And with these numbers, I think that’s completely off the table now.”
“The December meeting is probably still on the table for another hike, but that’s been more than priced in right now. I don’t think that’s going to be a big impact for markets. And the big thing is that we’ve taken off the October hike now, and that’ll be positive.”
THOMAS HAYES, CHAIRMAN, GREAT HILL CAPITAL LLC, NEW YORK:
“I think today is pretty historic. It’s going to change the dynamics of the market, and you’re seeing it already. The breadth of the market has been very, very narrow and limited to five or 10 stocks for the last two months. And now what we’re seeing today is broad-based buying across the board. The 90% of the market that had been left for dead is now starting to come back to life and starting to roar to life. This is a very, very good thing for market health, market participants, and the economy at large.
“This gives the Fed cover to certainly pause in the month of October and wait for more inflation data. There is absolutely no justification for hiking into a slowing or weakening yield curve that began to move toward inversion after the hike last month. Because once you invert the yield curve, you wind up with a recession 12 to 24 months out. So this does a lot to reduce the possibility of a hike. We need to see the downward revisions from last month confirmed, as there’s potentially a trend here, and that should give the Fed some pause about getting too aggressive too quickly. It may also take some of the burden off people who have to get financing and refinancing in business and housing.”
STEPHEN KOLANO, CHIEF INVESTMENT OFFICER, INTEGRATED PARTNERS, WALTHAM, MASSACHUSETTS:
“The NFP came in well below estimates, at 29K vs. the estimate of 90K, and the previous report was revised down. This will likely see the probability of a rate hike at the next meeting come down, and the Fed likely move toward a wait and see approach on inflation. While the labor market is stable, certain parts of the credit market are starting to see stress with higher spreads, mostly in lower tranches of the high-yield market currently. But with more debt issuance coming from hyperscalers, the Fed is likely to be cautious with more rate hikes so as not to derail the AI capex trend while they wait to see if inflation will respond to the back up in rates the market has already given them with a ten year at ~ 5.25%
CHRISTOPHER HODGE, CHIEF US ECONOMIST, NATIXIS, NEW YORK:
“Labor data for September disappointed, coming short of expectations, but doesn’t represent much more than the normalization of an existing trend. Payrolls rose just 29k, falling from the (revised lower) print of 133k in August, and the broad trend suggests still that the labor market is solid, but unspectacular.
“The three-month rate of payroll gains stands at 51k while the yearly gains averages 41k, both above most estimates of breakeven rates that would stabilize unemployment. The unemployment rate rose a touch and now rounds to 4.2% on the back of higher participation – a positive sign.”
LINDSAY ROSNER, HEAD OF MULTI-SECTOR FIXED INCOME INVESTING AT GOLDMAN SACHS ASSET MANAGEMENT, NEW YORK:
“October seems unlikely. Today’s soft print argues against the idea that the labor market is retightening. One follow-up hike in December remains our base case; however, continued pressure by markets and moves higher in energy prices could force the Fed’s hand this month as well.”
TIM HOLLAND, CHIEF INVESTMENT OFFICER, ORION, OMAHA, NEBRASKA:
“It would seem – at least as of this morning – that bad news is once again good news on Wall Street, as stock futures are sharply higher following a jobs report that came in well below expectations and an unemployment rate that came in above expectations. Our immediate reaction is that investors, while appreciating the need for the Federal Reserve to raise rates in September and maintain a hawkish policy stance in the face of still too high inflation, are worried that the Fed might raise rates too far, and too quickly. We would think today’s jobs report and unemployment rate buys the Fed some time on the rate hiking front, and that is welcomed news on Wall Street.”
GARY SCHLOSSBERG, GLOBAL STRATEGIST AT WELLS FARGO INVESTMENT INSTITUTE, GREENBRAE, CALIFORNIA:
“The employment report came in weaker than expected, perhaps indicating some loss of momentum by the economy coming into the fourth quarter of the year. We did have a very strong payroll number in August, and this may be a reaction to it. It definitely lessens the risk of an October rate hike. We’re still focused on the December meeting itself.
“The household employment number showed a very big increase, but an even larger increase in the labor force, which is the denominator in the unemployment rate. That meant we had an uptick in the unemployment rate. The unemployment rate really masks strength in that household-based measure, which diverged from the disappointing payroll number.
“It looks like wage inflation slowed again last month, slowing for the third straight month. That could mean some pressure on household purchasing power. The real strength we saw in consumer spending in August may have lost a step or two in September, based on that pressure on incomes.”
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK:
“It’s a cooler number than expected, but a number that suggests that the labor market remains in a growth mode. And without any inflationary wage pressures, which is a positive.
“Unemployment ticking up, I wouldn’t worry about that. That’s probably because of the participation rate picking up a bit.
“The bottom line is, this is a report that’s going to be friendly to the markets. It may help cool the rise in yields. It suggests that the Fed doesn’t have to worry about wage inflation, and along with the cooler than expected PCE price index that we got the other day, it suggests that the Fed could likely remain on hold for the October meeting.”
TODD SCHOENBERGER, CHIEF INVESTMENT OFFICER, CROSSCHECK MANAGEMENT, WASHINGTON, DC:
“The lower jobs print including the revision is, oddly enough, good news for stocks. With the bond market organically doing the job of the Fed recently, we needed to sacrifice a headline metric and this morning’s report accomplished the goal. Average hourly earnings down a tick helps relieve the inflation headache, albeit only in the short-term. Stocks will celebrate this news today even though Main Street has a legitimate reason to be concerned about job growth.”
BRIAN JACOBSEN, CHIEF ECONOMIC STRATEGIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN:
“This wasn’t a firecracker of a report; it was more like a dud.
“The labor market wasn’t as strong as we originally thought it was. July was revised back to a negative number, there was a decent bounce in August, but the bounce then fell flat with a mere +29,000 gain in September.
“The diffusion indexes dropped back below 50. Chair Warsh was concerned about the breadth of inflation, but now he’ll have to consider the lack of breadth in the labor market. This statement supports an October pause.”
(Reporting by Lucia Mutikani, Sudeshna Ghoshal, Darshan Kumar, Saeed Azhar, S. Siddarth, Tharuniyaa Lakshmi, Laura Matthews, Stephen Culp, Sashwat Chauhan, Chuck Mikolajczak; editing by Colin Barr)
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