The robust pace of US jobs growth cooled in September but the unemployment expectedly dropped, underscoring the need for the Federal Reserve to continue ploughing ahead with its campaign to tighten monetary policy.
The world’s largest economy added 263,000 positions last month, according to the Bureau of Labor Statistics, fewer than the 315,000 positions created in August and well below July’s 537,000 increase.
Despite the slower pace of growth, the unemployment rate edged back down to its pre-pandemic low of 3.5 per cent.
The data, released on Friday, come just days after figures showed employers slashed more than 1mn job openings in August — one of the sharpest monthly declines in two decades. That pushed the ratio of job vacancies to unemployed people down from 2 to 1.7.
Workers are still quitting at a high rate, however, suggesting that labour supply and demand are still out of balance.
Futures for the S&P 500 tumbled to be 0.7 per cent lower in pre-market trading on Friday, having been about flat ahead of the data release. The yield on the two-year US Treasury, which is sensitive to changes in policy expectations, rose 0.08 percentage points to 4.33 per cent.
Officials at the US central bank have projected their efforts to tame the worst inflation in four decades will require not only a sustained period of “below-trend” growth, but also job losses. A recession cannot be ruled out, Fed chair Jay Powell recently warned.
According to the most recent projections published by the Fed last month, the median forecast among policymakers for the unemployment rate shows it rising to just 3.8 per cent by the end of the year before jumping in 2023 to 4.4 per cent and staying at that level until 2025.
Officials have maintained that inflation can be tamed without a more substantive rise in unemployment, not least because employers may be hesitant to cut their workforces given the magnitude of the labour shortage since the onset of the pandemic.
As of September, the labour force participation rate still remained below its pre-pandemic level, at 62.3 per cent.
The persistently tight labour market — and the wage gains that have followed suit as companies try to attract new hires and retain old ones — is a top concern for the Fed, which is actively trying to restrain demand and reduce price pressures through supersized interest rate increases.
Average hourly earnings in September increased at the same 0.3 per cent rate as in the previous period, translating to an annual jump of 5 per cent.
Given wage pressures and inflation that has proven harder than expected to root out, the Fed is considering its fourth consecutive 0.75 percentage point interest rate increase at its upcoming meeting in November. So far this year, it has lifted its benchmark policy rate from near-zero to a range of 3 per cent to 3.25 per cent.
By the end of the year, most officials forecast the federal funds rate to hover between 4.25 per cent and 4.5 per cent, with further rate rises in early 2023. The benchmark policy rate is expected to peak just above 4.5 per cent. They have also emphasised that the Fed is not yet considering any pause in its rate-rising cycle even as signs of stress begin to emerge in the financial system and the global economic outlook sours.
Source: Economy - ft.com
