US job growth sizzles; wage inflation cooling

US employment increased by the most in eight months in September as hiring rose broadly, pointing to persistent labor market strength that could give the Federal Reserve ammunition to raise interest rates again, though wage growth is slowing.

The larger-than-expected increase in nonfarm payrolls last month and a sharp upward revision to July and August's jobs counts reported by the Labor Department in its closely watched employment report on Friday cemented expectations that economic activity accelerated in the third quarter.

The labor market and the broader economy's resilience, 18 months after the US central bank started raising rates to cool demand, suggests that monetary policy could remain tight for some time. The report followed news this week that job openings jumped in August and first-time applications for unemployment benefits remained low in September.

Financial markets and most economists believe the Fed is probably done hiking rates because of a recent surge in long-term US Treasury yields.

"The jump in employment, the extremely low level of unemployment claims, and the rise in job openings keep alive the possibility of the Fed raising rates one more time this year," said Kathy Bostjancic, chief economist at Nationwide. "Moreover, it underscores that they will be in no hurry to cut rates - higher rates for longer."

Nonfarm payrolls increased by 336,000 jobs last month, the largest increase since January. The economy created 119,000 more jobs than previously reported in July and August. Economists polled by Reuters had forecast payrolls rising by 170,000 jobs. The economy needs to create roughly 100,000 per month to keep up with growth in the working-age population.

The broad increase in payrolls was led by the leisure and hospitality industry, which added 96,000 jobs. Restaurants and bars dominated, with 61,000 positions created, returning employment in the sector back to its pre-pandemic level.

Government employment increased by 73,000 jobs, boosted by state government education and local government, excluding education. Government employment remains below its pre-pandemic level by 9,000 jobs. The healthcare sector added 41,000 jobs, lifted by ambulatory healthcare services, hospitals, nursing and residential care facilities.

There were gains in professional, scientific and technical services employment, though temporary help hiring continued to decline. Employment in the transportation and warehousing industry also rose as did retail and construction payrolls.

There was no impact on payrolls from a strike by the United Auto Workers (UAW) at General Motors (GM.N), Ford Motor (F.N) and Chrysler parent Stellantis (STLAM.MI). The strike by roughly 25,700 of the 146,000 UAW members started towards the end of week that the government surveyed businesses for September's employment report. Manufacturing payrolls increased 17,000.

Employment in the motion picture and sound recording industries fell 7,000 because of a months-long Hollywood strike.

US stocks opened lower. The dollar gained versus a basket of currencies. US Treasury prices fell.

Unemployment rate steady

Policymakers, eager to see labor market conditions easing, could draw some comfort from the unemployment rate, which was unchanged at an 18-month high of 3.8% in September. Monthly wage growth also remained moderate, with average hourly earnings rising 0.2% after a similar gain in August. That lowered the annual increase in wages to 4.2% after from 4.3% in August.

The moderation in wages was likely because most of the jobs added last month was in lower paying industries.

Nevertheless, wages are still rising faster than the 3.5% pace that economists say is consistent with the Fed's 2% inflation target. But as fewer people quit their jobs in search of greener pastures, wage growth could moderate, though recent hefty union contracts pose a risk.

Financial markets continued to lean toward the Fed keeping rates unchanged at its 31 October- 1 November policy meeting, though the odds of a hike are rising, according to CME Group's FedWatch tool. Inflation data next week could offer more clarity. Since March 2022, the Fed has raised its benchmark overnight interest rate by 525 basis points to the current 5.25%-5.50% range.

Labor market strength is helping to sustain the economy, with growth estimates for the third quarter as high as a 4.9% annualized pace, more than double what Fed officials regard as the non-inflationary rate of around 1.8%.

But dark clouds are gathering over the economy amid soaring US Treasury yields and political dysfunction in Washington.

Millions of Americans resume student loan repayments this month, which economists say will weigh on consumer spending, impacting purchases of long-lasting manufactured goods, houses as well as travel and entertainment, with ripple effects on employment. Economists estimate that the expiration of the more than three-year moratorium could cut at least $400 per month from budgets of households carrying student debt.