U.S. Added 100,000 More Jobs Than Expected Last Month As Labor Market Rockiness Eases

Topline

The teetering U.S. labor market received good news Friday, as September job growth shattered economist forecasts, pleasing on-edge equity investors.

Key Facts

Tangent

The government upwardly revised job growth in July by 55,000 to 144,000 and August by 17,000 to 159,000 on Friday. Both summer months’ initial reports disclosed far weaker labor market expansion than expected, as July’s first-reported 114,000 new jobs came short of economist estimates of 185,000 and August’s initial 142,000 was shy of the 160,000 forecasted.

Surprising Fact

The six-month-best jobs added number and better than previously reported summer growth jolted stocks, with S&P 500 futures up about 0.5%, set to open within 1% of its all-time high. But the bond market experienced a selloff as fears quieted about a labor market slowdown and related stimulus: Yields for the benchmark 10-year U.S. Treasury note shot up by about 10 basis points to as high as 3.97%, the highest mark since early August. Higher bond yields mean lower bond values, indicating investors are less enthused about the lower-risk asset class as expectations dimmed for aggressive interest rate cuts.

Key Background

The last two weaker-than-expected job reports set off alarms about the health of the U.S. labor market and the potential for a recession, though most economists believe the U.S. is far from a full-fledged downturn despite the added angst as output roars. Concerns about the labor market were made worse by the government’s August announcement it likely overestimated job growth from March 2022 to March 2023 by more than 800,000 positions. Hiring should receive a boost from monetary policy, as the Fed lowered interest rates for the first time in 4.5 years last month, as lower borrowing costs often cause companies to loosen their belts as bottom line pressures ease. Investors anticipate the Fed to make a series of rate cuts in coming months, with futures trading pricing in a federal funds rate of about 3% as the most likely scenario by the end of 2025, nearly half of the 5.25% to 5.5% range it stood from July 2023 to last month.