The September jobs report showed that the pace of hiring strengthened, with 254,000 new jobs, as wage growth firmed up and the unemployment rate unexpectedly dipped. After the jobs report, the S&P 500 traded modestly higher as investors applauded an improved economic backdrop, despite a likelihood of slower rate cuts from the Federal Reserve.
Ahead of the jobs report, markets had already downgraded the chances of another big rate cut at the Nov. 7 Fed meeting, amid resilient economic data and Chairman Jerome Powell's Monday assessment that the U.S. economy is in "solid shape." Thursday's temporary resolution of the dockworkers' union strike that had threatened to cause economic havoc removed another big risk to the outlook.
Jobs Report Hits And Misses
The 254,000 overall employment gain blew away economists' 132,500 forecast, according to Econoday. Private-sector employers added 223,000 jobs, exceeding 125,000 forecasts. Government jobs rose by 31,000.
Hiring gains in July and August were revised up by 72,000 jobs.
With the revisions, overall job growth has averaged 186,000 per month over the past quarter, including a solid 145,000 private-sector jobs.
Average hourly earnings rose 0.4% in September, above 0.3% estimates. Twelve-month wage growth of 4% exceeded 3.7% forecasts.
Household Survey
The headline job and wage figures come from the Labor Department's monthly survey of employers. The separate household survey details labor force participation, work status and the unemployment rate.
The unemployment rate fell to 4.1%, below steady 4.2% forecasts. That came as the ranks of the employed grew by 430,000, outstripping the 150,000 rise in labor force participation. As a result, the ranks of the unemployed fell by 281,000.
More Jobs Report Details
Health care and social assistance employment rose by 71,700. Leisure and hospitality employment grew by 78,000.
The construction industry added 25,000 jobs, but manufacturers cut 7,000. Retailers added 15,600 jobs.
A diffusion index measuring the breadth of hiring across industries rose to 57.6 in September from 51.8 in August and 49.2 in July. Numbers above 50 mean that more industries are firing than hiring. The diffusion index stood at 60.4 a year ago.
Fed Rate Cut Outlook
Ahead of the September jobs report, markets were pricing in 30.5% odds of a half-point rate cut at the Nov. 7 Fed meeting, according to CME Group's FedWatch page. That fell to just 10.5% after the jobs report, though markets still see 100% odds of a quarter-point rate cut.
Markets now see just 25.5% odds of 75 basis points in rate cuts over the year's final two meetings, down from 55.5% before the jobs report. Still, markets are 100% sold on at least a quarter-point rate cut at both of those meetings.
On Monday, Powell highlighted upward revisions to income data unveiled last week, which means households are saving more than economists had realized and are relying less on borrowing.
"That suggests spending can continue at a healthy level," Powell said.
Wall Street Reacts To Jobs Report
Seema Shah, chief global strategist at Principal Asset Management, wrote that the "monster upside surprise" destroyed any case for a half-point Fed rate cut in November. "With Fed easing now underway, recession risk has collapsed," she wrote. "Markets will need to keep a closer eye on inflation as, now, there are policy risks of both sides of the economy."
Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, predicted that the strong September payroll gain is "very likely to be revised away," citing a low response rate to the Bureau of Labor Statistics employer survey. Tombs wrote that only 62% of businesses filed responses in time, down from 68% a year ago and a more typical 77% rate last decade.
David Russell, global head of market strategy at TradeStation, wrote that the jobs reports "shows the economy doesn't need a lot of rate cuts." He added: "Investors might have to settle for less easing, but get in return stronger incomes and consumer demand. Ultimately, that's probably better for the stock market and economy overall."
S&P 500
The S&P 500 rose 0.3% in Friday morning stock market action after the jobs report. On Thursday, the S&P 500 dipped 0.2%, still finishing just 1.1% below its all-time closing high hit on Sept. 30.
Through Thursday, the S&P 500 remains up 19.5% for the year.
The 10-year Treasury yield, which rose 6 basis points to a one-month high of 3.85% on Thursday, jumped another 11 basis points after the jobs data.
Be sure to read IBD's The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.
