September nonfarm payrolls increase by 29,000; July and figues revised down by a combined 60,000
2-year yield at 4.725%, 10-year yield at 5.182%; stock index futures rise immediately following employment release
US Treasury yields fell and stock index futures rallied after September employment growth came in below market expectations. As job growth and wage increases slowed, expectations grew that the Federal Reserve (Fed) would not rush into additional interest rate hikes.
According to the employment report released by the US Bureau of Labor Statistics (BLS) on the 2nd (local time), nonfarm payrolls in September increased by 29,000 from the previous month. This fell well short of the market consensus of 90,000 compiled by Reuters. The unemployment rate ticked up from 4.1% in August to 4.2% in September.
Following the release, yields dropped across the bond market. According to market trends reported by Reuters, the yield on the 2-year US Treasury, which is sensitive to Fed policy rate expectations, fell 6 basis points (1 bp = 0.01 percentage point) to 4.725%. The 10-year yield also declined by 5 basis points to 5.182%. In the same report, the market-implied probability of an October rate hike briefly dropped to 12% before recovering to 19%.
Stock index futures advanced as well. As of 8:31 a.m. US Eastern Time (9:31 p.m. Korea Time), S&P 500 futures rose 0.79% and Nasdaq 100 futures gained 1.01%. The move reflected expectations that weaker-than-expected employment data would alleviate the burden of further monetary tightening.
The report also sharply revised down job figures for the prior two months. July employment growth was revised from a gain of 21,000 to a loss of 10,000, while August was revised down from a gain of 162,000 to 133,000. The combined downward revision for the two months totaled 60,000, indicating that August's job rebound was not as robust as originally reported.
Wage growth also moderated. Average hourly earnings in the private sector stood at $37.81, up 0.1% from the previous month and 3.0% from the same month last year. Private employment increased by 46,000, while government employment fell by 17,000. The private-sector diffusion index across 250 industries dropped from 57.6 in August to 49.0 in September. Falling below the 50 threshold means that industries experiencing job losses outnumbered those adding jobs.
The rise in the unemployment rate, however, cannot be immediately interpreted as a signal of widespread layoffs. A separate household survey showed that employed individuals increased by 406,000, while the labor force—the sum of employed and unemployed workers—grew by an even larger 485,000. The labor force participation rate also rose from 61.6% to 61.8%. The data suggests that while employment increased, the population entering the labor market grew at an even faster pace.
The Fed raised its benchmark interest rate to 3.75%-4.00% in September, signaling its commitment to curb elevated inflation. While the latest employment report provides grounds to reduce the urgency for additional hikes, it does not fully confirm price stability. Moving forward, the key determinant for the next policy decision will be how inflation data, set to be released ahead of the Federal Open Market Committee (FOMC) meeting on October 27-28, trends alongside the cooling labor market.
