US September non-farm payrolls significantly missed expectations, alongside weaker wage growth and downward revisions, impacting Federal Reserve rate hike probabilities and market sentiment.
The latest US jobs report for September delivered a significant shock to market expectations, revealing a much weaker-than-anticipated increase in non-farm payrolls. This figure fell considerably short of forecasts, signaling a potential cooling in the labor market that has broader implications for economic policy. The report's underperformance was not isolated to the headline number, as other key indicators also painted a less robust picture of employment conditions across the nation.
Specifically, the September non-farm payrolls print registered an addition of just 29,000 jobs, a stark contrast to the roughly 90,000 expected by economists. Compounding this disappointment, the Bureau of Labor Statistics also revised down job gains for the preceding two months by a combined 60,000 positions. July's figures were particularly revised negatively, now indicating a net loss of 10,000 jobs for that month, suggesting a downward trend in employment momentum.
Adding to the dovish tone, wage growth also moderated more than anticipated. Average hourly earnings saw a modest increase of only 5 cents, or 0.1%, in September. On a year-over-year basis, the pace of wage growth slowed to 3.0%. While average weekly hours remained stable, the softer wage inflation is a key consideration for the Federal Reserve, as it directly impacts the central bank's inflation outlook and its decisions on monetary policy.
The labor market's cooling effect was evident in the shift in Federal Reserve rate hike expectations. Ahead of the data release, futures markets priced in a 28% probability of a rate increase. In the immediate aftermath, this probability plummeted to around 15%, significantly diminishing the likelihood of a rate hike in the near term, particularly for the October meeting. This data suggests that unless future inflation readings are exceptionally strong, the Fed is likely to hold interest rates steady.
Despite the weak payrolls number, the household survey presented a contrasting, more positive picture, showing an increase of 406,000 in employment and a 485,000 expansion of the labor force. This led to a rise in the labor force participation rate to 61.8%. Consequently, the unemployment rate ticked up to 4.2%, but this increase was less alarming given the broader labor force expansion and the fact that the unrounded figure was only marginally above the threshold for the 4.2% print.
Market participants reacted swiftly to the report's implications. The US dollar weakened against the Japanese Yen, with USD/JPY falling from 157.60 to around 157.15. Treasury yields also saw a noticeable decline, with the 2-year yield dropping from 4.78% to 4.72%, and the 10-year yield easing from 5.23% to 5.17%. These movements reflect the market's repricing of interest rate expectations following the weaker-than-expected employment data.
Looking ahead, traders will be closely monitoring upcoming economic indicators, particularly inflation data such as the Consumer Price Index (CPI). Any signs of persistent inflation could complicate the Federal Reserve's decision-making process. However, this payrolls report has significantly lowered the bar for further rate hikes this year, suggesting a pause in monetary tightening is increasingly likely unless circumstances dramatically change.
Source: InvestingLive. Summarized and rewritten by the Vexoda Newsroom. This is market news, not financial advice.