Unexpected 254K Jobs Growth Probably Means Lower Rate Cuts

The September jobs report was more than 254,000 jobs and an unemployment rate of 4.1% when the Dow Jones survey of economists predicted 150,000 jobs and 4.2% unemployment. Taking all the factors together, it’s unlikely the Federal Reserve makes another 50-basis-point interest rate cut in the Federal Open Market Committee November meeting.

Not only was the actual September jobs count 69.3% over the estimate, but previous numbers were also revised upward: July by 55,000 and August by 17,000, for a total of 72,000.

Next were wages. Hourly wage growth expectations were 0.3% month over month and 3.8% year over year. The real numbers were 0.4% month over month and 4.0% year over year.

The Fed has its dual mandate of maintaining price stability and full employment. Most recently, Chair Jerome Powell has emphasized that concerns about an inflation rebound had faded and that the central bank needed to focus on a labor market that was in a good place and shouldn’t be left to falter.

The sudden jump in hiring and wage increases are a sign that the economy may be running hotter than expected and that, to what degree, more rate cuts are necessary.

“With oil prices rising because of Middle East tensions ratcheting up, and average hourly earnings rising, the Fed may worry about inflation rearing its ugly head,” wrote Gina Bolvin, president of Bolvin Wealth Management Group, in an emailed note. “We may be back to them focusing on a 50/50 dual mandate.”

“The report makes another 50bp rate cut unlikely,” wrote Oxford Economics in a note. “We expect a 25bp cut in November and December.”

Markets are reacting to the news. “Treasury yields — both on the 2-year and 10-year – jolted higher as the payroll headline print dramatically surprised to the upside as the unemployment rate ticked lower to 4.1 percent,” wrote Quincy Krosby, chief global strategist for LPL Financial, in an email. By noon on Friday, the 10-year was up 10 basis points from Thursday’s close.

Looking at a possible November cut, the impact of jobs numbers going forward is mixed, meaning a potentially volatile influence. As Oxford Economics noted, “Job growth will likely be weaker this month if the Boeing strike persists into next week, but the suspension of the port strikes removed a major source of potential weakness in the October report.”