U.S. September Jobs Surge to Double Expectations... December Rate Path 'Uncertain' (Comprehensive)

U.S. employment in September increased faster than expected. Although the release of the data was delayed by about two months due to the impact of the federal government shutdown (temporary suspension of government work), leading some to argue that it does not fully reflect recent labor market trends, the report is seen as easing concerns about a cooling job market. As disagreements within the Federal Reserve over the direction of monetary policy intensify, the stronger-than-expected employment figures have added to the uncertainty surrounding the interest rate path in December.

A job posting is displayed at a restaurant in Richardson, Texas, USA. Photo by AP Yonhap News

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On November 20 (local time), the U.S. Department of Labor’s Bureau of Labor Statistics (BLS) released the September employment report, showing that nonfarm payrolls increased by 119,000. This figure is more than double the expert forecast of 50,000 compiled by Dow Jones, marking the largest increase since April.

By sector, healthcare saw the largest increase with 43,000 jobs added, followed by bars and restaurants with 37,000, and social assistance with 14,000. In contrast, transportation and warehousing lost 25,000 jobs, while the federal government and professional and business services sectors saw reductions of 3,000 and 20,000 jobs, respectively.

Additionally, August nonfarm payrolls were revised down by 4,000, while July payrolls were revised down by 72,000. However, the three-month average of new jobs as of August was 62,000, a significant upward revision from the previous figure of 18,000.

The unemployment rate rose from 4.3% in August to 4.4% in September, exceeding the market forecast of 4.3%. This is the highest level since October 2021. However, the main reasons are interpreted as a decrease in the number of people leaving the labor force and an increase in the labor force participation rate to 62.4%.

Average hourly earnings increased by 0.2% from the previous month and by 3.8% from the previous year, generally in line with market expectations of 0.3% and 3.7%, respectively.

Unemployment benefits data also eased some concerns about a slowdown in employment. According to the U.S. Department of Labor, the number of new unemployment claims filed last week (October 30 to November 5) was 220,000, down 8,000 from the previous week. Continuing claims for unemployment benefits totaled 1,974,000 for the week of November 2 to 8, up 28,000 from the previous week and the highest since November 2021 (2,041,000). The increase is attributed to a rise in claims by federal employees due to the shutdown.

This data suggests that the labor market slowdown is not occurring as rapidly as expected. However, since the September numbers reflect the situation from two months prior, there are limitations in assessing the current trend. The September employment report was delayed due to the longest shutdown in history, which lasted 43 days from the first day of last month.

Daniel Zhao, Chief Economist at job platform Glassdoor, stated, “The September employment report shows that the labor market remained resilient and wage levels exceeded expectations even before the shutdown.” However, he added, “Since August employment was revised to show job losses and the unemployment rate has risen, the situation remains uncertain. These figures are from two months ago and do not reflect the current situation in November.”

Accordingly, the debate within the Fed over the interest rate path is expected to intensify. In the minutes of the October FOMC meeting released the previous day, ‘many’ members of the Fed opposed further rate cuts within the year, while ‘several’ members indicated that the possibility of additional cuts should remain open. With hawkish (favoring monetary tightening) and dovish (favoring monetary easing) members already sharply divided, the release of employment data with a significant time lag is expected to further widen the gap in interpretation between the two sides. The October and November employment reports, which will provide the latest labor market data, are scheduled to be released on December 16, after the December FOMC meeting.

Meanwhile, the market slightly raised expectations for a rate cut in December amid mixed signals from the increase in nonfarm payrolls, the rise in the unemployment rate, and the increase in continuing unemployment claims. According to CME FedWatch, the market now sees a 43.8% chance that the Fed will cut the benchmark interest rate, currently at 3.75-4.0% per year, by 0.25 percentage points next month, up from 30.1% the previous day. The probability of a rate hold fell from 69.9% to 56.2% over the same period.

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