United States: Another Jobs Stunner

The US labour market continues to amaze. We’d been seeing signs of a soft landing since spring, but today's release suggests the economy is taking off again. Today’s 336,000 gain is the biggest since January and almost double the 170,000 consensus forecast. And to top it all off, figures for the previous two months were revised up by a whopping 119,000—from 157,000 to 236,000 for July and from 187,000 to 227,000 for August.

Some indicators released in recent weeks suggested the labour market was holding up remarkably well. Weekly initial unemployment claims are down since late August, and there were fewer mass layoffs in September. Job openings were also up in August. September’s employment gains are breathtaking nonetheless.

Job creation was widespread. In September, 64.2% of the 250 sectors surveyed reported an increase in payrolls—the highest figure since January. Services led the gains. While several factors like high interest rates portend more trouble ahead for consumer spending, retailers added more jobs than they have since May. Hiring was also up sharply in food services and drinking places, and transportation and warehousing posted its first monthly gain after three negative months. But on the goods side, construction hiring slowed. Monthly job creation was flat in manufacturing at 13,000, including 8,900 in the automotive sector. We’ll have to see how the auto industry fares in October as the strike drags on. (September’s report doesn’t capture the strike as it didn’t begin until the very end of the survey week.)

September’s household survey was much quieter. It showed job creation of just 86,000, the smallest monthly gain since May’s decline. The unemployment rate held steady in September, but is up from its spring low. The household survey is usually less reliable, but this month it’s more in keeping with an economy slowing under the weight of higher interest rates.

Average hourly earnings were again up 0.2% month-over-month, and year-over-year earnings growth was moderately slower—further evidence that the job market isn’t fundamentally as hot as the establishment survey suggests.

By the looks of September’s hiring pickup, the US economy isn’t slowing down. While wages and inflation are moving in the right direction, labour market resilience is a worrying sign for the Fed and could dash hopes for a soft landing. The Fed may be tempted to raise rates at its next meeting, but surging bond yields could hurt the economy. Powell and company will have to weigh that risk carefully.