Underlying momentum in US employment remains intact
After a jobs report seriously distorted by extreme weather, the Fed remains on track to raise rates again in December.
Nonfarm payrolls fell 33,000 in September, with data affected by hurricanes in the southern US. These aside, labour market signals – especially when looking at the household survey – remain solid. After a drop of 74,000 in August, employment rose 906,000 in the household survey, leading to a sharp fall in unemployment to 4.2%, the lowest rate since February 2001.
The bottom line is that, hurricanes aside, labour-market momentum remains solid in the US. Recent forward-looking indices, such as initial jobless claims, job openings and business surveys all point to employment growth remaining robust in the near term.
One highlight of the report was the sharp rise in wage growth (0.5% m-o-m, pushing the y-o-y reading to 2.9%). But this may reflect some temporary impact from the hurricanes. While we expect momentum in US employment to remain solid until year’s end, we remain sceptical we are on the verge of the much-awaited sharp pick-up in wage growth.
Overall, this report keeps the Fed on track to raise rates again at its December meeting, in line with our long-held scenario. Given the distortions caused by extreme weather, the drop in the headline payroll print in September is likely to be ignored by Fed policy makers. The drop in the unemployment rate to 4.2% is likely to comfort their belief that the labour market is going from strength to strength.