Stronger-Than-Expected Jobs Report Keeps Fed on Aggressive Path

October 7, 2022

The US labor market was stronger-than-expected in September as the unemployment rate unexpectedly fell back to a historic low, putting the Federal Reserve on course for yet another aggressive interest rate hike.

The economy added 263,000 new jobs in September, beating estimates from Bloomberg economists, who expected 255,000 new jobs. The unemployment rate ticked down to 3.5%, the lowest level in more than 50 years. Economists had expected it to hold steady at 3.7%.

This is the most final jobs report Fed officials will have before their November policy meeting as they consider a fourth-straight 75-basis point interest-rate hike, something that markets now view as a near certainty.

There are some initial signs that the labor market is cooling. September’s 263,000 new jobs is a marked slowdown from August’s 315,000 gain and the lowest monthly increase since April 2021.

The drop in the unemployment rate is due primarily to a drop in the labor participation rate, which fell to 62.3% as the workforce shrank by roughly 57,000.

Wage growth remains robust, but is also slowing. Wages were up 5% annually in September, down from 5.2% in August. That marks the slowest rate since December 2021. Despite the slowdown, wage growth remains a primary driver of inflation, and with the unemployment rate so low, workers still maintain the leverage to push for higher wages, which are then passed onto consumers via higher prices. 

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