U.S. ECONOMIC MACRO COMMENTARY & INSIGHTS
- September Nonfarm Payrolls print beats expectations, hiring accelerates
- Unemployment rate ticks down to 4.1%
- Inflation continues to cool
At their September meeting, the Federal Open Market Committee (FOMC) voted to lower interest rates by 50 basis points, the first rate cut in over four years. The stated reasoning for the 50 bp cut was twofold: a steady cooling of inflation paired with a weakening labor market. This announcement made the labor market the core focus of the Fed and analysts alike. Prints prior to the Fed decision, such as nonfarm payrolls, unemployment, the Job Openings and Labor Turnover Survey (JOLTS) and ADP, all began to signal a weakening labor market.
The first major labor market prints following the rate cut were the September Nonfarm Payrolls (NFP) and Unemployment figures. The prints bucked the trend of a weakening labor market—the labor department reported that employers added 254,000 jobs last month. The figure was significantly more than the 150,000 jobs economists expected, and it marked the largest monthly increase since March. The print was boosted by an increase in the food services industry. Employment in food services and drinking places rose by 69,000 in September, well above the average monthly gain of 14,000 over the prior 12 months. The unemployment rate ticked down for the second consecutive month: The September level was 4.1% versus the market-expected 4.2% level.
The strong NFP print is certainly a positive note for the economy, as the labor market is not deteriorating nearly as quickly as once feared. The print, however, did have a major impact on the probabilities of future FOMC policy through the end of the year. On September 30 the market was pricing in 70 bps of rate cuts before the end of the year, implying at least two 25 bp cuts, with a strong probability of one of them being 50 bps. Since the September NFP print, these probabilities have shifted significantly. At the time of writing this article, the market is currently pricing in 44 bps of cuts through the end of the year, implying two 25 bp cuts, with a slight possibility of the Fed holding rates steady at a meeting.
Fed Chair Powell prepared the market for this type of scenario at the September FOMC meeting. Powell began the post-announcement press conference by proclaiming that the Fed has growing confidence that with an appropriate recalibration of policy stance, strength in the labor market can be maintained, but the job market is not imparting inflationary pressure on the economy. “We are not on any preset course and will make our decisions meeting to meeting,” and “We will move as fast or as slow as we think is appropriate,” Powell said.
Inflation has taken a back seat to the labor market as of late, but the figures are still worth noting. The consumer-price index (CPI) print was released yesterday; the headline print showed that U.S. inflation is cooling more slowly than expected. The CPI rose 2.4% from a year earlier, the Labor Department said Thursday, after rising 2.5% in August. That figure was above the 2.3% year-over-year projected level. Core CPI, however, missed to the upside at a 3.3% year-over-year figure versus the 3.2% expected rate. Recent inflation prints have been relatively tame and give no reason to think that the Fed will pause its rate-cutting cycle.
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