The U.S. September jobs report, which was released on Thursday after more than a month delay because of the government shutdown, is the last major publication that the Federal Reserve will receive before it makes its policy decision at its meeting on Dec. 10.
If any message emerged from the data, it’s that the increase of 119,000 jobs in September will bolster the case of the hawks at the Federal Reserve to hold off on any rate cuts for now.
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The hawks are not comfortable with inflation that has not been brought down to the Fed’s 2% target for more than five years as sticky pricing in the service sector more than offsets the disinflation elsewhere.
None of the four models we use to estimate the optimal interest rate suggests that a rate cut is necessary under current conditions.
For this reason, Thursday’s jobs data will feed into the recent monetary policy narrative that a rate cut is neither prudent nor warranted.
Because of demographic changes like the aging workforce and policy constraints like restrictions on immigration, we think that the economy does not have to generate many jobs each month to keep the labor market stable.
So, an average increase of 62,000 jobs over the past three months, in addition to the 119,000 new positions added in September, is not an economic or financial problem.
But that is a political problem, so we expect that the pressure on the Fed to cut rates will become much more pronounced as Dec. 10 approaches.
For those concerned about the quality of the jobs data and employers’ response to the government’s surveys, the collection rate for the September estimate was 80.2%, much higher than usual. As a result, we do not anticipate significant revisions to the September data.
Looking ahead, we expect both the October and November employment reports to show a softer pace of overall job growth.
In particular, with the DOGE-era government employees who were fired or bought out showing up as unemployed, we think that the October data, which will be rolled into the November jobs estimate, will show a modest decline in employment and a temporary increase in the unemployment rate.
In a separate report released on Thursday, the initial jobless claims for the week ending Nov. 15 showed a 220,000 pace of firings and continuing claims of 1.974 million. So, the combined jobs market data on Thursday does not point to a rapid deterioration of labor market conditions and affirms a modest growth path in the economy and employment.
The data
Once one considers the downward revision of 33,000 jobs in July and August, the total change in employment was 86,000, which is just above the three-month average increase of 62,000. While slow by historical standards, that figure is in line with the 50,000 jobs a month that we estimate are necessary to keep labor market conditions stable.
Private education and health services added 59,000 jobs on the month; leisure and hospitality hired 47,000 employees; and government added 22,000.
Total private employment increased by 97,000 positions, with 10,000 new goods-producing jobs created and 19,000 construction jobs added on the month.
The high-paying industries in the production sector lost jobs across the board in September with manufacturing losing 6,000 jobs, durable goods shedding 4,000, motor vehicle and parts production 1,000 and nondurable goods production 2,000.
Private service-providing employers added 87,000 jobs on the month, with wholesale trade adding 9,000, retail trade 14,000 and the financial sector 5,000. The trade and tariff-impacted transportation and warehousing sector lost 25,000 jobs on the month while hiring was flat in the utilities and information sectors.
Professional business services lost 20,000 jobs in September while temporary services declined by 16,000.
The household survey showed an increase in the unemployment rate to 4.4% because of a modest increase in the civilian labor force. The labor force participation rate increased to 62.4%, and the employment-to-population ratio advanced to 59.7%. Those working part time for economic reasons declined by 170,000. The unemployment rate of those 25 and older stood at 3.5%.
The takeaway
Modest gains in employment will support the same in overall economic activity, which implies that a December rate cut is neither warranted nor necessary.
While the composition of the September jobs report was titled toward jobs paying lower wages, we anticipate a rebound in the higher-paying categories as expansionary fiscal policies take hold next year.
