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Payroll Gains Smash Expectations in September, Tilting Odds Heavily in Favor of Another Rate Hike

Non-farm payroll employment rose by 336k in September, well ahead of expectations calling for a gain of 170k. Revisions to the two prior months were also meaningfully higher, adding an additional 119k to the previously reported figures.

  • Hiring over the last three-months averaged 266k jobs per-month, well above August’s 189k but still below the 334k reported in January.

Private payrolls rose 263k – the strongest pace of monthly gains since January. Service-sector gains (+234k) were concentrated in leisure & hospitality (+96k), health care & social assistance (+66k), retail trade (+20k) and professional & business services (+21k). Goods producing industries added 29k jobs last month, with gains spread across construction (+17k), manufacturing (+13k), and mining & logging (+1k). Government also chipped in with a sizeable 73k.

  • The breadth of hiring – as captured by the diffusion index widen to 64.2% – which is the highest level since January 2023.

In the household survey, gains in civilian employment (+86k) nearly matched those of the labor force (+90k), which resulted in the unemployment rate holding steady at 3.8%. The participation rate also held steady at its cyclical high of 62.8%.

Average hourly earnings were up 0.2% month-on-month (m/m) – matching August’s gain. The twelve-month change inched a tick lower to 4.2%, while the truncated three-month annualized change slipped to 3.4% (previously 4.4%).

Key Implications

Job growth was considerably stronger than expected in September, expanding by the fastest pace since January. Sizeable revisions to the prior months also contributed to an abrupt U-turn in what had previously looked like a steady downward trend in the pace of hiring. While wage growth came in under expectations, Fed officials won’t be able to look past the fact that labor force growth is slowing at a time when job openings remain elevated, which if left unchecked, will likely pressure wages higher over the coming months.

This morning’s employment report provided another shot in the arm to Treasury yields, with the 10-year rising to 4.85%. Even with the recent tightening in financial conditions and inflation trending favorably in recent months, this morning’s report showed clear evidence that the labor market remains far too hot. At this point, another rate hike in November seems inevitable. And while next week’s CPI report will provide another key piece of the puzzle, policymakers are likely to put more weight on today’s employment numbers as the continued labor market resilience remains an upside threat to inflation.

TD Bank Financial Group
TD Bank Financial Grouphttp://www.td.com/economics/
The information contained in this report has been prepared for the information of our customers by TD Bank Financial Group. The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does TD Bank Financial Group assume any responsibility or liability.

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