In the latest release of the September nonfarm payroll data, the U.S. labor market demonstrated its resilience amid fierce competition for talent.
Nonfarm payrolls rose sharply in September, adding an impressive 336,000 jobs, surpassing earlier forecasts of 170,000. This remarkable rebound follows July and August, which saw employment gains of 236,000 and 227,000, respectively, a significant increase of 79,000 and 40,000 jobs, respectively, from the previous statistics.
The continued tightness in the labor market has raised questions about the Federal Reserve's policy stance, with potential implications for interest rates. Notably, robust job growth was seen across a variety of sectors, with the leisure/hospitality, government, and healthcare industries standing out.
The leisure and hospitality sectors sector added a substantial 96,000 jobs over the month, with food services and drinking places contributing more than 60,000 jobs. This surge effectively restored pre-pandemic employment levels for the first time, as noted by Hana Securities Global Asset Research.
Government employment also increased by 73,000 jobs, due in part to a temporary increase of about 40,000 jobs in the education sector due to the start of the new school year. Meanwhile, the healthcare sector continued its strong demand for employment, adding 41,000 jobs and reaffirming its need for skilled workers.
The dynamics of supply and demand in the labor market were reflected in the results of the previous month's household survey, which measures the labor force, including the continuing unemployment rate. Key indicators, such as the labor force participation rate and the core labor force participation rate (25-54 year olds) remained stable at 62.8% and 83.5%, respectively. The unemployment rate held steady at 3.8%, in line with expectations and the previous month's reading.
However, it's important to note that the unemployment rate has been gradually increasing since the first half of the year, coinciding with a sustained influx increase in the labor force over the past five months. This suggests that the labor market is beginning to lose momentum and that the impressive employment figures may be partly due to seasonal effects and the ongoing recovery in certain industries.
As more people enter the labor force, the number of newly unemployed individuals is rising, which should gradually ease tight labor market conditions. For the Federal Reserve (Fed), the key question is whether robust employment numbers will translate into meaningful wage growth.
Wage levels are broadly stable. The main concern is whether workers will gain the upper hand in wage negotiations. Average hourly earnings rose a modest 0.2% month-on-month, slightly below the 0.3% pace. Of particular note is the decline in service sector wages, which may be offsetting the drag from rising service prices, according to Hana Securities.
Wage growth was mainly concentrated in low-wage industries, such as leisure and hospitality, and among low-skilled workers. Despite the significant increase in new jobs in the leisure and hospitality sector, average hourly earnings growth remained flat at 0.0% month-on-month.
The voluntary quits rate and the need for job stability play an important role in shaping wage dynamics. A lower voluntary quit rate and a stronger inclination to remain in a single job exert less pressure on wage growth, potentially contributing to the stability of core prices. The voluntary quit rate declined from 2.6% in May to 2.3% in August, signaling lower confidence in job turnover confidence. In addition, the Federal Reserve Bank of New York's forecast for households that will be unemployed within a year increased from 10.9% in May to 13.8% in August.
In conclusion, as companies scale back their hiring plans and price pressures remain limited, the Federal Reserve is likely to maintain its stance of higher interest rates and continued rate freezes for an extended period.
