September’s strong US job report has a silver lining for those fearing rate hikes: slowing wage growth

The strong September US jobs report spooked the markets with the rising prospect of yet another interest rate hike by the Federal Reserve before the end of this year. But one indicator suggests the Fed still has reason to hold back.

Average hourly wage earnings grew just 0.2% for the month and 4.2% from a year ago, according to the US Bureau of Labor Statistics. This was marginally below economists’ average forecast for increases of 0.3% and 4.3% respectively.

Nonfarm payrolls added a stunning 336,000 jobs in September, much higher than the expected 170,000 from the Dow Jones consensus. The unemployment rate was unchanged from the previous month at 3.8%.

According to Nick Bunker, head of economic research at job site Indeed, the slowdown in wage growth is the key trend in the report.

“The recent wage data should reduce concerns about wage growth defying gravity—on a 3-month annualized basis, wages are growing at a 3.4% rate, which is near what we saw in 2019,” Bunker said in a statement.

This means that while there is still a strong demand for workers, employers are not hiking wages as rapidly to be able to attract talent.

Restaurant and bar jobs are back at pre-pandemic levels

The addition of 61,000 jobs in the restaurant and bar industry
closes another chapter in America’s economic recovery from the COVID-19 pandemic. Restaurants and bars now account for 12.37 million jobs, up from 12.34 million in February 2020, before widespread shutdowns and layoffs that wiped out half the jobs in the industry within two months.

Count on the doomsayers to be out warning of an unsustainable economy, with fears of elevated rate hikes. But Bunker says to take a step back and consider the underlying trends.

“Hiring has moderated from recent highs and there’s capacity to pull more workers into the labor force while wage growth is moderating,” wrote Bunker.

“This is good news. Take it as such.”

The stock market seems to be following this advice, with the Standard & Poor’s 500 Index up nearly 0.9% in midday trading to 4,294.88.

 An unforeseen burst of hiring last month has lifted hopes that the economy will prove durable once again, even as an array of threats lie ahead.

Businesses across the U.S. economy ramped up their hiring in September, defying surging interest rates, financial market turmoil, the ongoing threat of a government shutdown, and an uncertain outlook to add the most jobs in any month since January.

The hiring binge confounded expectations for a slowdown and added one more layer of complexity to the Federal Reserve’s high-wire effort to defeat inflation without causing a recession.

The 336,000 jobs that were added in September exceeded the 227,000 for August and raised the average gain for the past three months to a robust 266,000. The unemployment rate was unchanged at 3.8%, not far above a half-century low.

Friday’s government report raised hopes for a notoriously difficult “soft landing,” by which the Federal Reserve would manage to curb high inflation with a series of rate hikes without derailing the economy.

But the healthy pace of hiring also highlights the confounding nature of the U.S. economy as it navigates the uncharted post-pandemic era. A strong job market suggests that growth might be too healthy for inflation to keep declining and that the Fed might have to further raise rates.

Speaking after the September hiring data was released, President Joe Biden asserted that the robust job growth was a result of his policies, a message he has repeated in speeches ahead of next year’s elections. Yet polls show that most adults still hold a negative view of the economy, with Biden’s agenda having yet to make much impact on public sentiment.

The president attributed public doubts about the economy to the nature of news media coverage, which he said prioritizes the negative.

“I think that the American people are smart as hell and know what their interests are,” Biden said. “I think they know they’re better off financially than they were before.”

Here are some questions and answers about Friday’s job report.


The Fed has raised its benchmark short-term rate 11 times since last year to about 5.4%, the highest in 22 years — the fastest pace of rate hikes in four decades. The increases are intended to slow borrowing and spending by businesses and consumers, thereby cooling growth. When employers added just 105,000 jobs in June, economists had expected further modest gains to come. Instead, hiring has rebounded with vigor.

There are several likely reasons why: Millions of people have started job hunting in the past year, pulled into the job market by strong demand for workers and higher pay. Others have likely been drawn in by the financial stress they feel from higher prices. Immigration has also rebounded after COVID-era restrictions were lifted.

As a result, more workers are available to fill millions of open positions. This trend has lessened the labor shortages that many employers complained about since the recovery from the 2020 pandemic and enabled some companies to finally catch up to their previous employment levels. In September, for example, restaurants and bars added 61,000 positions, finally restoring their pre-pandemic levels of payrolls.

Likewise, hospitals, childcare centers, and government agencies are still adding workers as they seek to rebuild their staffs after having lost workers during COVID.

“We’ve seen a very impressive rebound in the labor supply,” said Sarah House, senior economist at Wells Fargo. “After a downturn, there’s a lot of consternation about to what extent workers will come back. And what we’ve seen is that workers do respond to a strong jobs market.”

Sarah Tilley, a senior vice president at the business software provider ServiceNow, is seeing evidence that more workers are available. Responses to their job listings are 80% higher than they were a year and a half ago, she said, with some of that increase likely a result of widespread layoffs last year by tech companies.

Another change from a year ago, she noted, is that even workers with tech skills are less able to job-hop for large raises.

“People would jump off, get these real meaty increases,” she said. “And that’s changed. People are less inclined to take the risk.”

Consumers spent freely over the summer — on travel, hotels, movies, and concert tickets — and lifted the economy in the process. Because consumer spending drives about 70% of the U.S. economy, analysts expect growth to top a healthy 3% annual rate for the July-September quarter. With the economy growing steadily, businesses are likely more confident about adding positions.


It could make Fed officials more inclined to raise their key interest rate in November or December. In the past, Chair Jerome Powell has said that slowing inflation back to the Fed’s 2% target will require “pain” in the labor market. So far, there’s been little to no such pain.

And just Thursday, Mary Daly, president of the Federal Reserve Bank of San Francisco, suggested that the Fed could hold off on another hike “if we continue to see a cooling labor market and inflation heading back to our target.” Friday’s data doesn’t suggest much cooling is happening.

At the same time, the Fed’s main concern is that rapid hiring will stoke strong wage increases. Higher wages can fuel inflation if companies raise their prices to offset their higher labor costs. In September, wage growth slowed; it rose 4.2% from a year earlier. That is a solid gain, and slightly faster than inflation. But it was the mildest year-over-year increase in more than two years.

Such data underscores the tantalizing prospect that inflation could continue to ease — it was 3.7% in August — without requiring widespread layoffs or a recession, in what Austan Goolsbee, head of the Federal Reserve Bank of Chicago, calls “the golden path.” Some other Fed officials think the economy will have to cool to truly stamp out rising prices.

At the same time, long-term interest rates have spiked in the past two months, making loans more expensive across the economy and potentially serving as a brake on economic growth and inflation. Mortgage rates have jumped to 7.5%, the highest level in 23 years.

“It’s a pretty solid report and perhaps it makes the Fed a little bit more nervous just given the overall strength of the jobs market,” House said. But the jump in interest rates “is doing some of the Fed’s work for it, and that makes another hike less compelling.”

Another consideration that economists are increasingly considering is that if the economy is still chugging along, maybe that shows that it can withstand higher interest rates for the long term. If so, the Fed’s benchmark rate might not be restricting growth as much as Fed officials think and may need to rise noticeably higher.


The U.S. economy is vast and diverse, and even in solid job reports, there are pockets of weakness. In September, while the overall unemployment rate was unchanged, it rose noticeably for African-American workers.

Higher unemployment for Black Americans can sometimes serve as a warning signal of a weakening economy. That’s because Black workers are often the first to be laid off. It’s too soon to say if that is happening now, given that Black unemployment is still relatively low at 5.7%.

Still, that rate is up from 5.3% in August, and from a record low for Black unemployment of 4.7% in April.

The jobless rate for Hispanics fell last month from 4.9% to 4.6%. For Asian Americans, it fell from 3.1% to 2.8%. For whites, the unemployment rate was unchanged at 3.4%.

The job market is defying all odds.

U.S. employers added 336,000 jobs in September, according to the Labor Department. That's about twice as many as forecasters were expecting.

The strong job growth is welcome news for anyone looking for work. But it could make the Federal Reserve's effort to bring down inflation harder.

Here are four things to know about the monthly employment snapshot.

The jobs engine is not slowing down

Instead of the slowdown that forecasters expected to see in the jobs numbers, hiring appears to be revving up. Not only did employers add an eye-popping number of jobs in September, but revised figures show that hiring was much stronger in July and August than had been reported.

Last month's job gains were broad-based with nearly every industry adding workers.

Restaurants and bars added 61,000 jobs in September and are finally back to where they were before the pandemic. Health care and education also added tens of thousands of workers last month. Even factories and construction companies continued to hire, despite the strain of rising interest rates.

The job market has implications for the Fed

The Federal Reserve is keeping a close eye on the job market as it tries to decide whether to raise interest rates even higher, in an effort to control inflation.

At its last meeting in September, policymakers appeared to be leaning toward one more rate hike this year in their quest to bring prices under control.

The strong September employment report could be a worry, but it may not be all bad from the Fed's perspective.

The main concern with a hot labor market is that it could put upward pressure on wages, and threaten further inflation.

But despite the big job gains last month, wage growth remained modest. Average wages in September were up 4.2% from a year ago, and wages rose just 0.2% between August and September.

"Wage growth is cooling so this doesn't look like an inflationary job market," says Julia Coronado, president of MacroPolicy Perspectives. "It's kind of Goldilocks, actually."

The unemployment rate is still low

The unemployment rate held steady in September at 3.8%. While the jobless rate has inched up from earlier this year, it remains very low by historical standards.

The unemployment rate rose in August because hundreds of thousands of new people joined the workforce that month. That's a good sign because it suggests people are optimistic about their job prospects. And with more people working, the economy can grow without putting upward pressure on prices.

A cautionary note: the unemployment rate for African Americans rose last month from 5.3 to 5.7%. That could be a statistical fluke. The number has bounced up and down a lot in recent months. But it's something to keep an eye on.

Strike news won't show up until next month

This jobs tally was conducted in mid-September, just before the United Auto Workers strike began, so it doesn't reflect the 25,000 autoworkers who are on strike as of Friday morning, nor the several thousand additional workers who've been idled because of parts shortages tied to the strike.

The September snapshot was also taken before Hollywood writers ended their strike. Those changes could show up in the October jobs report.

Ivanna Hampton: September’s job gains plowed through Wall Street’s expectations. The Labor Department reported employers added 336,000 jobs last month. That’s almost more than double forecasters’ estimates. Morningstar Research Services U.S. Senior Economist Preston Caldwell has more on what this means for the economy. Thanks for joining me, Preston.

Preston Caldwell: Thanks, Ivanna.

Hampton: So hiring surged last month, and the Labor Department also revised and raised August’s and July’s estimates. What do you make of the job market gains?

Caldwell: It’s important to keep in mind that the job numbers, like any economic indicator, can be very noisy, and have a lot of statistical noise. So what we want to avoid is what we see in much of the media, where the narrative lurches from one extreme to another based off of this noisy monthly data. And so what we do is, first off, I look at a three-month moving average. And it is true that on that basis, in the last three months, job gains were 2.1% annualized, which is an uptick compared to the 1.6% growth of the prior three months.

But it’s not a dramatic increase. I would say the data raises the possibility that the prior downtrend in job growth that we saw over the last couple of years has stopped, but it certainly doesn’t foreclose the possibility that that downtrend will renew later on.

Hampton: Now, when Americans are employed, they like to spend. What will it take for the jobs market to weaken enough that it could spark the kind of pullback in consumer spending that will result in a much slower economy?

Caldwell: It’s important to remember that employment is typically a lagging economic indicator. And so usually, we see other developments in the economy happen and then employment responds with a lag. And so right now, one of the biggest factors that’s driving strong consumer spending and the overall level of economic growth is the fact that consumers are just upbeat in their behavior. Despite what they say in the surveys, savings rates are fairly low, which means consumers feel very free to spend. I do think that will change eventually, and when that does, that will weigh on the overall economy by reducing consumption growth, and that will eventually lead to slowing job gains.

Hampton: The Fed is scheduled to announce its rate decision on Nov. 1. It has signaled a “higher for longer” to avoid repeating the mistakes of the 1970s, where it cut rates too fast. What will you be watching for to see how committed the Fed is to that “higher for longer” message?

Caldwell: First off, I would say, insofar as job growth remains robust, the Fed obviously isn’t going to cut rates in the next couple of meetings, which nobody expected anyway. On the other hand, I don’t think that the strong job growth that we saw in today’s report is going to induce the Fed to hike again because the inflation data remains quite positive in recent reports. Also, we’ve seen a large runup in bond yields over the last month, which constitutes actually an effective monetary policy tightening.

Now, we do think eventually, in 2024, the Fed will shift to cutting rates because we think by that time inflation will have returned greatly to normal and we will see softening in the broader economic data including the labor market.

Hampton: All right, so something that we should keep our eyes on as we head into the new year. Thanks, Preston, for your time today.

Caldwell: Thanks for having me. Ivanna.

Here are the key takeaways from the US employment report for September released Friday:

  • There’s no way around it: Payrolls blew past all estimates. Employers added 336,000 jobs in September, the most since January and about double the median estimate in a Bloomberg survey. Revisions also added 119,000 more jobs for July and August.
  • The unemployment rate held at 3.8% amid a surge of unemployed re-entrants looking for a job, while the participation rate remained unchanged at 62.8%. Average weekly hours were also unchanged. Wages increased 0.2% from the prior month, but wage growth slowed from the prior year to 4.2%.
  • Gains in payrolls were led by the hospitality-leisure and education-health care sectors, following a trend we’ve seen in the past year as those industries rebuild their ranks after the pandemic and as service demand rises. Restaurant and bar employment levels are now back to pre-pandemic highs.
  • What does this all mean for the Federal Reserve? The headline figure is hot, and wage growth remains firm, supporting another interest rate hike this year. But the details in the household survey were weaker; average hours worked remain flat and below last year’s surge, and the participation rate remained unchanged, suggesting that employers aren’t necessarily pulling more workers in from the sidelines. So there’s a question of how the Fed will read this report.
  • Good news for the labor market is bad news for traders. S&P 500 futures and futures on the tech-heavy Nasdaq 100 sank as investors boosted bets that another Fed hike is in the cards. The yield on 10-year Treasuries surged. Gold fell.

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