Economy adds 263K jobs in September, unemployment ticks down

The U.S. added 263,000 jobs in September and the unemployment rate fell to 3.5 percent, according to data released Friday by the Labor Department.

The September employment report showed job growth continuing to slow from a torrid pace earlier in the year, but remaining strong as the economy powers through high inflation and rising interest rates.

The jobless rate also dropped by 0.2 percentage points and returned to pre-pandemic level in February 2020, which was the lowest unemployment rate in nearly 50 years.

Economists expected the U.S. to have added roughly 250,000 jobs last month and the unemployment rate to remain at 3.7 percent, according to consensus estimates. The decline in the jobless rate last month came as labor force participation fell slightly — a sign of ample demand for workers even amid recession fears.

“The US labor market continues to decelerate, but there are no signs that it’s stalling out,” wrote Nick Bunker, head of economic research at Indeed Hiring Lab, in a Friday analysis.

“There might be some turbulence ahead, but the labor market continues to cruise.”

The leisure and hospitality sector led all other industries in job gains in September, adding 83,000 new workers last month. Employment in health care rose by 60,000, returning to its pre-pandemic employment level, and the U.S. also added 46,000 jobs in employment and business services.

The construction and manufacturing sectors also added 19,000 jobs and 22,000 jobs respectively last month even amid rising interest intended to crater activity in those sectors.

The Federal Reserve has been rapidly raising interest rates to restrain the job market and fight inflation by making households poorer on net. The U.S. had added an average of 420,000 jobs each month in 2022 after gaining roughly 561,000 jobs each month last year, all while wage growth remained above 5 percent annually.

While job seekers found ample opportunities in September, wage growth continued to cool off and fall back toward pre-pandemic levels. Average hourly earnings rose 0.3 percent in September when adjusted for inflation and rose 5 percent over the past 12 months, down from an annual rate of 5.2 percent last month.

A slowdown in wage growth may be tough news for Americans seeking better pay amid rising consumer prices. Economists are hopeful that a decline in wage growth will help businesses bring prices down and take a bite out of inflation.

“The slowing job growth is an encouraging sign for the Fed, though they will need to see evidence that inflation is meaningfully slower before pivoting back to softer monetary policy,” wrote Daniel Zhao, senior economist at Glassdoor, in a Friday analysis.

But the slight slowdown will likely keep the Fed on track to keep jacking up interest rates until the labor market shows serious signs of crumbling.

“A clear sign of cooling in today’s jobs report is the deceleration in wage growth over the last few months. The Federal Reserve should be watching these trends closely to make sure they don’t overshoot and force an unnecessary and painful recession,” said Elise Gould, senior economist at the Economic Policy Institute, a left-leaning think tank, in a Friday analysis.

The Fed is expected to raise its baseline interest rate range by 0.75 percentage points at its next monetary policy meeting in November. While Fed Chair Jerome Powell once called a hike of that size “unusually large,” the Fed has raised rates by 75 basis points in each of its past three meetings, spurring a remarkably steep increase in borrowing costs.

The Fed’s rate hikes have pushed mortgage rates to the highest level since before the 2007-08 recession, slowing the housing market and weighing on other interest-rate sensitive sectors of the economy. As the Fed keeps hiking rates, the strain of higher borrowing costs and slower sales will likely force businesses to cut back hiring and eventually cut jobs.

“Reports over the past few months have shown high inflation to be stubbornly persistent, while the labor market has remained strong,” said Fed Governor Lisa Cook in a Thursday speech.

“Although lowering inflation will bring some pain, a failure to restore price stability would make it much harder and much more painful to restore it in the future.”

Updated at 10:15 a.m.