Nonfarm payrolls are up 254,000 in September along with a net upward revision of 72,000 in the prior two months. The September increase is a big upside surprise compared to the consensus of up 132,500 in the Econoday survey of forecasters and surpasses the high end of the range of expectations of up 180,000. Fed policymakers will not regret the 50-basis point rate cut announced on September 18 which was in part to preserve the labor market in its present state now that it has rebalanced and normalized. However, it also means that the FOMC will be comfortable further easing restrictive monetary policy at a tempered pace along the lines of its forecasts in the summary of economic projections.

The monthly average in payroll gains for the third quarter is 186,000, somewhat above the monthly average for the second quarter of 147,000, but slower than 267,000 in the first quarter.

Private payrolls are up 223,000 in September. Payrolls among goods-producers are up 21,000 with construction up 25,000, mining and logging up 3,000, and manufacturing down 7,000. Private service-providers' payrolls are up 202,000 with widespread increases led by 78,000 in leisure and hospitality and 81,000 in education and health services.


Average hourly earnings are up 0.4 percent in September from August and up 4.0 percent year-over-year. Although gains in hourly earnings have moderated since the start of 2024, these remain consistent with solidly rising incomes. The average workweek is down 0.1 hour to 34.2 hours in September.

The unemployment rate is down a tenth to 4.1 percent in September and the U-6 unemployment rate is down two-tenths to 7.7 percent. The participation rate is unchanged at 62.7 percent. The number of people employed is up 430,000 to 161,864 in September while the number of people unemployed is down 281,000 to 6.834 million.

Part-time employment for economic reasons is down 206,000 to 4.624 million in September. Job losers are down 95,000 to 3.233 million and job leavers are down 27,000 to 818,000. There are 662,000 new entrants in the labor force, down 56,000 in September.

Overall, the report reflects a healthy labor market able to absorb new workers, employ those who are in the market for a job, and with employers able to find workers to fill empty slots although offering higher compensation to do so.

A 132,500 rise is the call for nonfarm payroll growth in September versus August's lower-than-expected 142,000 rise. Average hourly earnings in September are expected to rise 0.3 percent on the month for a year-over-year rate of 3.7 percent; these would compare with August's rates of 0.4 percent on the month and 3.8 percent on the year. September's unemployment rate is expected to remain unchanged from August's and July's 4.2 percent.

The most closely watched of all economic indicators, the employment situation is a set of monthly labor market indicators based on two separate reports: the establishment survey which tracks 650,000 worksites and offers the nonfarm payroll and average hourly earnings headlines and the household survey which interviews 60,000 households and generates the unemployment rate.

Nonfarm payrolls track the number of part-time and full-time employees in both business and government. Average hourly earnings track employee pay while the average workweek, also part of the establishment survey, tracks the number of hours worked. The report's private payroll measure excludes government workers.

The unemployment rate measures the number of unemployed as a percentage of the labor force. In order to be counted as unemployed, one must be actively looking for work. Other commonly known data from the household survey include the labor supply and discouraged workers.

If ever there was an economic report that can move the markets, this is it! The anticipation on Wall Street each month is palpable, the reactions can be dramatic, and the information for investors is invaluable. By digging just a little deeper than the headline unemployment rate, investors can take more strategic control of their portfolio and even take advantage of unique investment opportunities that often arise in the days surrounding this report.

The employment data give the most comprehensive report on how many people are looking for jobs, how many have them, what they're getting paid and how many hours they are working. These numbers are the best way to gauge the current state as well as the future direction of the economy. Nonfarm payrolls are categorized by sectors. This sector data can go a long way in helping investors determine in which economic sectors they intend to invest.

The employment statistics also provide insight on wage trends, and wage inflation is high on the list of opponents of easy monetary policy. Fed officials constantly monitor this data watching for even the smallest signs of potential inflationary pressures, even when economic conditions are soggy. If inflation is under control, it is easier for the Fed to maintain a more accommodative monetary policy. If inflation is a problem, the Fed is limited in providing economic stimulus.

By tracking the jobs data, investors can sense the degree of tightness in the job market. If wage inflation threatens, it's a good bet that interest rates will rise; bond and stock prices will fall. No doubt that the only investors in a good mood will be the ones who watched the employment report and adjusted their portfolios to anticipate these events. In contrast, when job growth is slow or negative, then interest rates are likely to decline - boosting up bond and stock prices in the process.


Importance
The employment situation is the primary monthly indicator of aggregate economic activity because it encompasses all major sectors of the economy. It is comprehensive and available early in the month. Many other economic indicators are dependent upon its information. It not only reveals information about the labor market, but about income and production as well. In short, it provides clues about other economic indicators reported for the month and plays a big role in influencing financial market psychology during the month. Additionally, the Fed has made 6.5 percent unemployment a threshold for considering changes in policy - both for quantitative easing and the fed funds rate. And the Fed has emphasized that it is overall labor market conditions that matter - not just a specific number.

Interpretation
The bond market will rally (fall) when the employment situation shows weakness (strength). The equity market often rallies with the bond market on weak data because low interest rates are good for stocks. But sometimes the two markets move in opposite directions. After all, a healthy labor market should be favorable for the stock market because it supports economic growth and corporate profits. At the same time, bond traders are more concerned about the potential for inflationary pressures.

The unemployment rate rises during cyclical downturns and falls during periods of rapid economic growth. A rising unemployment rate is associated with a weak or contracting economy and declining interest rates. Conversely, a decreasing unemployment rate is associated with an expanding economy and potentially rising interest rates. The fear is that wages will accelerate if the unemployment rate becomes too low and workers are hard to find.

Nonfarm payroll employment indicates the current level of economic activity. Increases in nonfarm payrolls translate into earnings that workers will spend on goods and services in the economy. The greater the increase in employment, the faster is the total economic growth. When the economy is in the mature phase of an expansion, rapid increases in employment cause fears of inflationary pressures if rapid demand for goods and services cannot be met by current production.

When the average workweek trends up, it supports production gains in the current period and portends additional employment increases. When the average workweek is in a declining mode, it probably is signaling a potential slowdown in employment growth-or even outright declines in employment in case of recession.

Gains in average hourly earnings represent wage pressures. It is worth noting that these figures aren't adjusted for overtime pay or shifts in the composition of the workforce, which affects wages on its own. Market participants believe that a rising trend in hourly earnings will lead to higher inflation. But if increased wages are matched by productivity gains, producers likely will not increase product prices with wages because their unit labor costs are stable.