The published BLS report for September showed several factors confirming the continuing tension in the labor market.
Firstly, the total increase in jobs in September (336K) turned out to be almost twice the consensus forecast (170K), the highest in the last 8 months and more than 3 times higher than the Fed's optimal increase of 70-100 thousand jobs per month. Secondly, the data for the previous 2 months were revised upwards by a total of 119K (August – from 187K to 227K, July – from 157K to 236K). The main increase in the number of jobs in September was in the hotel business and entertainment, the public sector, health and social security, professional, scientific and technical services. At the same time, the unemployment rate remained unchanged (3.8%), slightly above the market consensus of 3.7%, but remained very low compared to the historical trend. A conditionally positive moment can be considered the preservation of the growth rate of average hourly wages at the August level of 0.2% MoM, below the consensus forecast of 0.3% MoM, and its slowdown in annual terms from 4.3% to 4.2% (at least since June 2021). However, this is still significantly higher than 3.5%, which, according to the Fed, corresponds to a decrease in inflation towards the 2% target. The level of participation in the labor force (participation rate) remained at the August value (62.8%), this is the maximum since the beginning of the covid pandemic – 62.8%. The BLS data, as it often happens, came into categorical contradiction with this week's data on employment in the private sector of the American economy from ADP, according to which the growth in the number of jobs in September (+89K) was the lowest since January 2021.
The data did not reflect the impact of the strike of employees of US automobile companies, since it began near the end of the period that was taken into account in the report.
The data for September, combined with a significant upward revision of the data for the previous 2 months, change the perception of the labor market in the United States. Earlier, Powell said that supply and demand in the labor market are becoming more balanced, which should help reduce inflationary pressure. Now it is clear that the demand for labor was stronger than expected. The overall picture of the labor market suggests that the cooling of the "overheated" labor market, if it happens, is slower than previously thought. And this, all other things being equal, increases the chances of an additional increase in the Fed rate and a later transition to its reduction.
This is the last most significant report on the US labor market before the Fed meeting on October 31 – November 1, inflation data will still be released. It slightly increases the probability of another rate hike by 25 bps – up to 5.5-5.75%, which was already expected by most Fed leaders at the September meeting and may contribute to maintaining the tough rhetoric of the regulator in the style of "higher rates for a longer period." The first reaction of the markets was an increase in the yield of UST-10 to a new high in 17 years (4.88%), a strengthening of the dollar, a decline in US stock indices and oil prices.
Job growth in September was 336K, exceeding the consensus forecast (170K). The indicators for the previous 2 months were revised downward by a total of 119K - (August – from 187K to 227K, July – from 157K to 236K). The increase in jobs in September was the highest in the last 8 months and more than 3 times higher than 70-100 thousand jobs. per month, which Powell called the optimal job growth to balance with the growth of the working-age population.
The strongest growth in September was given by the hotel business and entertainment (+96 thousand), healthcare and social assistance (+65.9 thousand), private education and medical services (+70 thousand), the government sector (+73 thousand). A slight reduction in jobs is noted in the information sector (-5 thousand) and among temporary workers.
The unemployment rate remained unchanged at 3.8% (the maximum since February 2022), the market expected a slight decline to 3.7%. These data are determined by the BLS on the basis of another survey – not of firms, but of households. At the same time, according to the survey of households, the number of labor force increased slightly - by 90 thousand (the number of employed increased by 86 thousand, the number of unemployed - by 5 thousand), the participation rate, which stagnated by 62.6% since March, remained at the August level of 62.8% (maximum since February 2020, but below the pre-pandemic 63.3%).
The growth of the average hourly wage remained at a minimum for 1.5 years (+0.2% MoM, as in August), the consensus forecast assumed an acceleration of growth to 0.3% MoM. In annual terms, wage growth also slowed to 4.2% from 4.3% in August (at least since June 2021), the market expected to maintain the August pace. Nevertheless, the wage growth rate is still much higher than 3.5%, which the Fed considers compatible with inflation near the target (2%).
The previously released JOLTS report for August showed that the number of open vacancies unexpectedly increased to the maximum since May (9.6 million), and the increase was the highest in 2 years. Nevertheless, the ratio of the number of vacancies to the number of job seekers decreased to the lowest since September 2021, 1.51 against 1.53 in July. In the spring of 2022, it reached 2.0, at the beginning of this year about 1.8. This, as well as a slowdown in wage growth and an increase in participation rate, suggests that the imbalance between supply and demand in the labor market is still decreasing.
The number of job cuts initiated by employers, which jumped sharply in August, slowed down in September. As indicated in the report of the employment company Challenger, Gray & Christmas, the number of announced job cuts by American employers last month amounted to 47.4 thousand people, which is about 37% less than 75.15 thousand in August, but still 58% higher than in September 2022.
The overall picture of the labor market suggests that the cooling of the "overheated" labor market, if it happens, is slower than previously thought. And this, all other things being equal, increases the chances of an additional increase in the Fed rate and a later transition to its reduction. Futures for the Fed rate on the Chicago Stock Exchange now estimate at about 30% the probability of a rate hike at the next meeting by 25 basis points (up to 5.5-5.75%), whereas a day earlier it was estimated at 20%. At the December meeting, the rate of 5.5-5.75% is already expected with a probability of 39% (against 29% yesterday), and with a probability of 6.4% they estimate an increase in the rate to 5.75-6%.
