US employment growth cools in September
The robust pace of US jobs growth cooled in September but the unemployment rate unexpectedly dropped, firming expectations that the Federal Reserve will raise interest rates by another 0.75 percentage points at its next meeting in November.
The world’s largest economy added 263,000 positions last month, according to the Bureau of Labor Statistics, fewer than the 315,000 positions created in August and well below July’s 537,000 increase. So far in 2022, monthly jobs growth is averaging 420,000, down from the 562,000 average monthly pace in 2021.
Despite the slower pace of growth, the unemployment rate edged back down to its pre-pandemic low of 3.5 per cent as the share of Americans either employed or seeking a job declined slightly.
“The story is that a 0.75 percentage point hike in November is likely,” said Tiffany Wilding, North America economist at Pimco. “The Fed needs to continue to tighten.”
Officials at the US central bank are actively discussing whether a fourth-consecutive jumbo rate rise is necessary next month or if they can potentially downshift to raising rates in half-point increments. So far this year, the Fed has lifted its benchmark policy rate from near-zero to a range of 3 per cent to 3.25 per cent.
The debate rests on how resilient the US economy continues to be and whether inflation is beginning to trend back to the Fed’s 2 per cent target.
Friday’s report underscored that the labour market remains quite strong, despite recent signs employers are beginning to scale back hiring.
Earlier this week, new data showed companies slashed more than 1mn job openings in August — one of the sharpest monthly declines in two decades. That pushed the ratio of job vacancies to unemployed people down to 1.7 from 2.
Workers are still quitting at a high rate, however, suggesting that labour supply and demand are still out of balance.
Traders in fed funds futures contracts on Friday priced in the odds of a 0.75 percentage point rate rise next month at 82 per cent, according to CME Group, up from 75 per cent prior to the latest jobs report.
The S&P 500 slid 2.2 per cent lower in early trading on Wall Street on Friday, having been about flat ahead of the data release. The yield on the two-year US Treasury, which is sensitive to changes in policy expectations, was up 0.06 percentage points to 4.31 per cent.
According to Alex Veroude, chief investment officer for fixed income at Insight Investment, Friday’s data further solidifies that a Fed “pivot” is not coming anytime soon.
Officials this…
Read More: US employment growth cools in September