September Jobs Report was a Marathon

Chicago erupted in cheers on Sunday when newcomer Kelvin Kiptum won the Chicago Marathon, and as outsized as this achievement was, setting a new record, the U.S. economy in the labor report from Friday’s Labor Department, hit 336,000 non-farm jobs for the month of September sent shockwaves through the country’s financial markets with employers, and employees, seeing an unanticipated  surge

We’ve almost worn out the adjective “resilient”, and even “durable” is beginning to sound hackneyed, but  one thing is certain, the U.S. has turned the corner for a recession, and it's also apparent that more furrowed brows, and sleepless nights  are a certainty for members of the Federal Reserve Bank, and, especially its chair, Jerome Powell.

While opinions vary as to whether or not an interest rate increase is coming soon, many are saying that one is sure to come before the end of the year, and others less sanguine, say that market forces may be the water bearer for the Fed.

Wages, that figure most watched by many, had an increase of 0.2 percent, or 7 cents, and showed a slowdown from a year ago, of 3 and 4 percent; and, while this alone might not be the entire picture, the country has nearly returned to pre-pandemic employment levels, an achievement in, and of itself. 

The New York Times noted that this is the “33rd consecutive month of job growth, and the increase was the biggest since January.”

Once again leisure and hospitality led the rise, at 96,000 jobs, followed by government with 73,000 gains, with an increase in hiring, followed by education and health at 70,000, the latter attributable in some quarters to public education hiring. 

The soft wages do reflect, in part, that, (as we saw last month) employers are no longer feeling the need to offer financial and other incentives to attract qualified workers, and this maybe, just maybe, softened Powell’s attitude at the next FOMC meeting when discussing rate hikes are on the table.

Odds in some quarters are betting that the next rate hike will be increased, and a poll of some economists is holding at a 43 percent chance.

Again, the position of the Fed is precarious in its calculation, and Kathy Jones, Charles Schwab’s chief fixed investment strategist, noted to Bloomberg “It certainly shows a  strong labor market, but the pace of wage gains has been slowing, and this leaves the door open to another rate hike by the Fed. It’s a tough balancing act between subdued inflation pressures and strong growth.”

“This is a blowout report, and it’ll have people thinking that the Fed may pull the trigger on another hike before year-end, the selloff in rates be damned,” Omair Sharif, president and founder of Inflation Insights LLC, said in a note to clients, according to Bloomberg. 

Diane Swonk, chief economist at KPMG LLP in Chicago sees the bond market as doing much of the heavy lifting  for the Fed, but, “that said, the acceleration in growth justified higher rates and hawks will remain concerned about backsliding on progress made on inflation, as they meet in November.”

"The knee-jerk reaction to September’s surprisingly hot nonfarm payroll is that the Fed may have to hike more — but the details favor another interpretation. Household employment is weak, and the soft increase in wages and flat hours worked suggest labor-market conditions are not quite so rosy,” said economist Anna Wong, another Bloomberg sourced economist.

In yet another survey the odds have risen from 56 percent v. 46 percent for a November or December rate hike from the FOMC.

What may help, or not, in the calculations is the revision of  the two previous months' job figures: up 40,000 for August, and July increased to 236,000, giving rise to even more speculation. 

Whichever way we look, this is certainly a more optimistic view than a year ago, when the national economy could sway either way.