U.S. Job Growth Continues Beyond Pre-Pandemic High

Despite the Fed's continued efforts to cool the U.S. labor market in order to tame inflation, job growth once again came in higher than expected last month. According to the latest jobs report, published by the Bureau of Labor Statistics on Friday, total nonfarm payroll employment rose by 336,000 in September, nearly double the consensus estimate of 170,000 new jobs. Total nonfarm employment in the U.S. climbed to 156.9 million, exceeding the pre-pandemic high of 152.4 million by four and a half million jobs. While job growth blew past expectations, wage growth continued to cool off, with average hourly earnings growing 4.2 percent year-over-year, just below consensus estimates of 4.3 percent.

Stocks initially fell in response to the hotter-than-expected jobs report, before posting a stunning turnaround in a roller coaster session on Friday. The S&P 500 ended the day up 1.18 percent, as investors chose to focus on the cooler-than-expected wage growth and the stable unemployment rate rather than the hotter-than-expected job gains.

It’s a weird situation created by the inflation crisis: while normally picking up on good news, Wall Street is now hoping for signs of a cooling labor market, because anything signaling a slowdown increases the chances of the Fed refraining from further rate hikes. “There is likely enough good news from wage growth and the unemployment rate to keep the Fed from returning to rate hikes," Dante DeAntonio, labor economist at Moody’s Analytics, said after Friday's release. A lot will now depend on this week's CPI reading in determining what the FOMC will decide at its next meeting on October 31/November 1.