Job growth fell slightly below expectations in September and the unemployment rate fell despite the Federal Reserve’s efforts to slow the economy, the Labor Department said on Friday.
Nonfarm payrolls rose 263,000 for the month, compared with the Dow Jones estimate of 275,000. The jobless rate was 3.5 percent, against a forecast of 3.7 percent, as the labor force participation rate fell to 62. 3%, and the size of the labor force decreased by 57,000.
The September payrolls figure slowed from a 315,000 increase in August and was tied for the lowest monthly gain since April 2021.
In closely watched wage numbers, average hourly earnings rose 0.3% month-on-month, in line with forecasts, and 5% from a year ago, an increase that was still well above the pre-pandemic norm but 0.1 percentage points below forecast.
Stock market futures fell after the release, while government bond yields rose.
By sector, leisure and hospitality led gains with an increase of 83,000, a gain that still left the industry 1.1 million jobs short of pre-pandemic February 2020 levels.
Elsewhere, health care added 60,000, professional and business services increased by 46,000 and manufacturing contributed 22,000. Construction grew by 19,000 and wholesale trade by 11,000.
A drop of 25,000 government jobs contributed greatly to the report missing expectations. State and local hiring is highly seasonal, so the decline points to a report that otherwise largely met expectations and showed a resilient labor market.
Also on the negative side, financial activities and transportation and warehousing accounted for 8,000 job losses.
The report comes amid months-long efforts by the Federal Reserve to reduce inflation, which is near its highest annual rate in more than 40 years. The central bank has raised interest rates five times this year by a total of 3 percentage points and is expected to keep raising them until at least the end of the year.
Despite the increases, job growth remains relatively strong as companies face a huge supply-demand mismatch that leaves about 1.7 jobs for every available worker. This, in turn, has helped boost wages, although the increase in average hourly earnings has been well below inflation, which was recently at 8.3%.
Fed officials, including Chairman Jerome Powell, said they expected rate hikes to cause “some pain” to the economy. Members of the Federal Open Market Committee indicated in September that they expect the unemployment rate to rise to 4.4 percent in 2023 and hold around that level before falling to 4 percent over the long term.
Markets widely expect the Fed to continue its pace of rate hikes with another 0.75 percentage point increase in November. Traders pegged a 78% chance of a three-quarter point move after the jobs report and expect another half-point hike in December, which would bring the federal funds rate to a range of 4.25%-4.5%.
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