Massive Job Gains Suggest Americans Are Still Spending

American employers added 336,000 jobs in September, the Bureau of Labor Statistics said on Friday, significantly beating estimates of around 170,000 jobs.

It's a sign of a resilient economy that is still looking for workers at a time when the Federal Reserve is grappling with the problem of high inflation.

Job gains were led by the leisure and hospitality sectors, which contributed nearly 100,000 jobs, suggesting that the service industry is strong. Unemployment stayed at 3.8 percent with the number of people without jobs unchanged at 6.4 million.

Hourly wages jumped only slightly by 0.2 percent, suggesting there was no new added pressure on inflation.

Job growth was double economists' expectations, the majority of whom anticipated an increase of 170,000. The massive job growth reported Friday could nudge the Fed to hike interest rates at their next meeting in November.

After markets initially declined—yields, the interest on bonds went up and equities dropped—they now look to have rallied and are emerging from what has been a tough week. Treasuries while still elevated settled down a bit just about at 5 percent. At the close of trading on Friday at 16.00 p.m. ET, the Dow Jones Industrial Average was up nearly 300 points, a jump of close to 0.9 percent.

The jobs report complicated the Fed's work, analysts at Oxford Economics said in a note.

"The jobs data increase the risk of another rate hike, but we continue to think the Fed will proceed cautiously given the swift tightening of financial conditions," said Nancy Vanden Houten, the lead U.S. economist at Oxford Economics. "However, an upside surprise to next week's CPI report could tip the scales in favor of a rate hike at the November 1 meeting."

The Fed has aggressively raised rates since March 2022 to battle a historic jump in inflation that hit a 40-year high. The current range of 5.25 to 5.5 percent is its highest in two decades, pushing up the cost of borrowing for consumers. The price of loans for mortgages, for example, is now the highest since 2000, according to lender Freddie Mac.

Economists at Oxford Economics suggested that the stronger-than-expected job growth last month may be a seasonal quirk typically associated with September job trends.

"Seasonal adjustment factors 'expect' a decline in employment in this sector in September and workers leave summer jobs," Vanden Houten told Newsweek in a follow-up email. "Since the pandemic, these factors have been overcorrecting for this."

The yearly hourly earnings grew by 4.2 percent and rose 0.2 percent for the month.

"Earnings growth continues to be too strong for the Fed, although most measures of wage growth are moving in the right direction," Vanden Houten said.

In the short-term this suggested that it was good for the economy as employers are still hiring but presents a conundrum for the Fed, economist Mohamed El-Erian told Bloomberg. It may suggest that the high-interest environment will stay around for longer as policymakers try to control inflation and bring it down to the 2 percent target.

"This is good news for the economy right now. The fact that we can deliver over 400,000 jobs if you include revisions without earnings pressure is good news," he said. "It is secondly bad news for markets and for the Fed. The Fed is not going to welcome this report. Which leads to my third issue, which is over the long term, this may end up being bad news for the economy as well."

Biden Happy with the Job Numbers

President Joe Biden on Friday welcomed the report. He told reporters at the White House that new hiring in September added to the more than 13 million jobs his administration helped create since he came into office more than two years ago.

"My dad had an expression: he said, 'A job is more than a paycheck. It's about your dignity. It's about respect. It's about being able to look your kid in the eye and say, 'Honey, it's going to be okay' and mean it.' Well, today 336,000 more Americans if they have children can say that to their children and mean it," Biden said.

The unemployment rate has stayed under 4 percent for 20 months in a row, the longest stretch in half a century, he said. Biden pointed out that the jobs picture showed record unemployment rate for women and people of color in the country and said his policies contributed to the jobs growth.

"It's no accident. It's Bidenomics," he said. The president added that inflation was also down, the lowest of any major economy.

Asked why Americans feel sour about the economy, despite what Biden said were good trends, he suggested it was partly due to the media's negative reporting.

"I think the people—those 300-plus-thousand people who got jobs feel better about the economy," he said. "You all are not the happiest people in the world—what you report."

Some analysts suggested that the strong hiring and cooling of wages was good news for what the Fed was trying to achieve. The initial negative reaction may have been because of nervousness that the Fed may keep rates for longer to the detriment of the economy.

"It's a totally fair concern, but it's hard to see this turning into a bear market without some sort of crisis or material breakdown in the data," Callie Cox, U.S. Investment Analyst at eToro, said in a note on LinkedIn. "The inflation crisis is probably past us, and a recession clearly isn't in the cards right now unless something changes quickly."

While the labor market is tight, "the job market is working for a good swath of Americans," she added.

Even as wages remain high, they are moderating, said Zillow's senior economist Orphe Divounguy.

"This is because the gap between supply and demand is shrinking—the recipe for a soft landing," he wrote.

Divounguy was encouraged by the hiring in the construction sector.

"Good news since it partly reflects continued new building that will help shrink a large housing deficit," he added.

Update 10/06/23, 15:50 p.m. ET: This story has been updated to President Joe Biden's comments, background and context.