Job growth in September came in far above expectations at 336,000, according to a survey of employers from the Bureau of Labor Statistics. In addition, there were large upward revisions to job growth in July and August of a combined 119,000. All of this means that the labor market picture looks very different from last month, when it appeared that job growth was slowing to a more sustainable pace. Over the past three months job growth has averaged almost 270,000, about double the long-run sustainable pace. This increases the likelihood that the Federal Open Market Committee will increase the fed funds rate when it meets next on November 1; this is the last jobs report before that meeting. 

One bright spot is that wage growth was soft in September, with average hourly earnings up just 0.2%. The private sector added 263,000 jobs in September, with government employment up by 73,000. 

The unemployment rate held steady at 3.8% in September, after increasing from 3.5% in July to 3.8% in August. According to a survey of households, different from the survey of employers, employment increased by 86,000 in September. The labor force-the number of people working or looking for work in the household survey-rose by 90,000 in September, after jumping by 211,000 in August. The labor force participation rate, which is the share of adults in the labor force, held steady at 62.8% in September from August. This is the highest it has been since early 2020, but before the pandemic the labor force participation rate was consistently above 63%, so the labor market is structurally tighter post-pandemic. 

The much stronger than expected jobs report creates a big headache for the Federal Open Market Committee. In last month’s jobs report the three-month moving average of job growth through August was a reported 150,000; in the current jobs report it is 266,000 through September, including revisions. Although inflation is slowing, job growth is running much too hot for the central bank. The very strong September report may lead the Federal Open Market Committee to raise the fed funds rate by 25 basis points in early November. Right now the fed funds futures market is pricing in a 31% probability of a rate increase at the next FOMC meeting, up from 20% yesterday. 

Private goods-producing industries added 29,000 jobs in September, with gains of 17,000 in manufacturing and 11,000 in construction; the UAW strike started after the data for September were collected. Private service-providing industries added 234,000 jobs in September, with big gains in leisure and hospitality services (96,000) and education and health services (70,000). 

Average hourly earnings rose a modest 0.2% over the month in September, the same pace as in August. On a year-over-year basis average hourly earnings were up 4.2% in September, down from 4.3% in August. While wage growth has slowed dramatically from its peak of almost 6% in early 2022, it is still well above the roughly 3.5% pace consistent with the Federal Reserve’s 2% inflation objective. 

The average workweek was unchanged in September at 34.4 hours. With more jobs, an unchanged workweek, and slightly higher wages, aggregate pay increased 0.4% in September from August. This is above PNC’s forecast of 0.2% inflation for September (CPI to be released October 12), pointing to an increase in real earnings over the month, supporting continued gains in consumer spending. 

Most of the upward revisions to job growth in July and August came from government (combined upward revisions of 95,000) and not the private sector (24,000). 

Long-term yields rose on the release of the report, with the yield on the 10-year Treasury note up 12 basis points to 4.83%, the highest it has been since 2007. The yield on the 3-month T-bill is up slightly to 5.52%. The S&P 500 is down 0.4% with higher interest rates, while the dollar as strengthened. The price of a barrel of West Texas Intermediate crude oil is up 0.2% this morning to just around $82.50.

The PNC Financial Services Group, Inc. is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance, and asset-based lending; wealth management and asset management. For information about PNC, visit www.pnc.com.