The Bureau of Labor Statistics reported that the US economy added 263,000 jobs in September as the unemployment rate edged lower to 3.5% from 3.7% in the previous month. Going into the report, analysts were looking for an increase of 275,000 jobs.
Stocks had a negative reaction to the announcement with the Nasdaq
Ordinarily, a strong jobs report is indisputably bullish for stocks, but this is not an ordinary period given the Federal Reserve's aggressive, hawkish stance. However, this report led to an increase in the odds of another 75 basis point hike at the next Federal Open Market Committee (FOMC) meeting. Odds also slightly increased for a 75 basis point hike at the December meeting, while odds for no hike or a 25 basis point hike decreased.
Instead, stocks weakened as it essentially gives the Fed more room to fight inflation, raise rates, and keep them higher for longer. Once the labor market starts to weaken, then the market would probably start pricing in a 'Fed pivot'.
A big factor in the drop in the unemployment rate was the size of the labor force declining by 57,000. Average hourly earnings were in-line with estimates with a 0.3% monthly gain and a 5% annual increase.
Leisure and hospitality had the biggest increase in jobs at 83,000, but it still remains 1.1 million jobs below February 2020 levels. Some other key sectors that saw growth were construction and business services with gains of 19,000 and 46,000, respectively.
Ultimately, the jobs report is a rejoinder to the narrative that the economy is already in a recession. It's also giving credence to the argument that the economy is less rate-sensitive than many believe. High rates are clearly having a drag on certain parts of the economy like housing and exports, but it's not impeding overall economic activity in the U.S.
