Key takeaways
The economy created 254,000 new jobs in September 2024, the highest monthly payroll increase since March.
July and August job growth numbers were also revised upward.
The Federal Reserve is closely scrutinizing job market data in determining monetary policy.
The latest jobs report indicates continued health for the country’s labor market. According to the U.S. Bureau of Labor Statistics (BLS), in September, 254,000 new non-farm payroll jobs were created, significantly exceeding market expectation. September’s job growth also outpaced the previous 12 months average monthly gain of 203,000. On top of that, the BLS revised July and August jobs numbers, amounting to an additional 72,000 jobs during that period.1
The solid job report comes on the heels of the Federal Reserve’s (Fed’s) first interest rate cut in more than four years. In mid-September, the Fed reduced the target federal funds rate, the rate used by financial institutions that provide overnight loans to each other, by 0.50%. The Fed’s justification for its action was, in part, concerns about labor market weakness.
“The job market’s definitely taken center stage for the Fed in that they seem to believe they have a handle on inflation,” says Rob Haworth, senior investment strategy director for U.S. Bank Asset Management. Haworth notes that the September jobs report is the first of two the Fed will see before the November meeting of the interest rate-policymaking Federal Open Market Committee (FOMC).
The pace of Fed rate cuts may be tempered by strong labor market data. “The Fed is attuned to labor market performance to determine if they can stay on a more normal path in cutting the fed funds rate,” says Haworth.
What’s not reflected in September’s report is possible fallout from Hurricane Helene, which proved extremely destructive in a six-state area of the southeastern U.S. This could have a negative impact on October’s jobs report.
The surprising September non-farm payrolls jump, combined with July and August’s upward revisions, changed the labor market’s recent trajectory. While job growth slowed from previous years’ levels, the rate of third quarter monthly job growth exceeded the year-to-date monthly average.2
“Markets generally have little concern with revisions of past job growth numbers,” says Haworth. “That data is not market-moving because it is so far in the rearview mirror. Markets are more concerned with the direction the economy is headed.”
September’s payroll growth was led by a boost in food and beverage services, and healthcare jobs. Government and construction employment also continued upward trends. Monthly changes were marginal in most other industry categories.1
Though the change was modest, September’s unemployment rate dropped. It stands at 4.1%, below July’s peak 4.3% reading.1 “When taking a more historical view of the unemployment rate, a number in the low 4% range is quite favorable,” says Haworth.
The unemployment rate held below 4% from February of 2022 through April 2024, but then in May, crossed the 4% threshold.2
The number of open positions compared to available workers, which previously was significantly imbalanced with far more jobs than workers, recently leveled off. At the end of August, according to the U.S. Bureau of Labor Statistics, there were 8.0 million job openings in the U.S., compared to 6.8 million unemployed persons.3
One measure economists watch to forecast potential changes in labor market trends is the weekly new jobless claims report. In the most recent report, initial jobless claims stood at 225,000 for the week ending September 28, 2024.4 This is down from a 2024 high of 249,000 jobless claims at the end of July. “If you look at long-term history, sub-300,000 initial weekly jobless claims is considered a fairly healthy level for the economy,” says Haworth. “The spike in July had more to do with seasonal factors. We could get another spike because of Hurricane Helene.”
“Improving labor participation is one way to address the tightness in the labor market that’s propping up wage gains,” says Matt Schoeppner, senior economist at U.S. Bank.
New hiring is slower than in earlier times. “Companies appear to be investing more into capital expenditures rather than into hiring new people,” says Eric Freedman, chief investment officer, U.S. Bank Asset Management. “The mix of new jobs is not as robust as it once was.
Markets also track the labor force participation rate, considered a key barometer of the broader economy's health. This number hasn’t changed much over the past year, and in September, for the third consecutive month, stood at 62.7%.1 “Improving labor participation is one way to address tightness in the labor market that’s propping up wage gains,” says Matt Schoeppner, a senior economist at U.S. Bank.
The Fed recently adjusted its interest rate policy, which was designed to slow economic growth and lower inflation. After raising rates from near 0% to 5.50%, and then, for more than a year, maintaining rates at that level, the Fed in September implemented a rate cut. It was a signal that the Fed views inflation as a receding problem for the economy. The nation’s Gross Domestic Product (GDP) grew at an annualized rate of 3% in 2024’s second quarter, nearly double first quarter annualized GDP growth.5 Inflation, as measured by the Consumer Price Index, dropped in August to 2.5% for the previous 12-month period, its lowest level since early 2021.2
Haworth notes average monthly wage growth is an inflation measure included in the jobs report that the Fed closely monitors. That number bumped up slightly in September to 4.0% for the preceding 12 months, compared to 3.6% for the 12 months ending in July and August’s 3.8%. Still, wage growth is down considerably from recent highs.1
Investors continue to closely track jobs data as key economic indicators and how they may signal potential Fed interest rate cuts. Fed rate cuts are considered a way to boost the economy, help support the stock market rally that began in 2023, and also benefit the bond market.
Talk with a wealth professional if you have questions about your personal financial circumstances or investment portfolio.
The job market refers to the marketplace where individuals seek work and employers seek workers. The strength of the job market is considered one important measure of the current health of the broader economy. If more jobs are being created and demand for labor is high, it tends to reaffirm the presence of an expanding economy. By contrast, higher unemployment levels and low job growth (or a decline in job growth) indicate a slowing economy.
The unemployment rate, reported monthly by the U.S. Bureau of Labor Statistics, provides significant insight into the health of the nation’s economy. Generally, the lower the unemployment rate, the stronger the economy is likely to be. The unemployment rate is also one of the mostly closely followed indicators. It’s important to note that the unemployment rate reflects people who are out of work but still seeking employment. It does not reflect others who have stopped looking for work or consider themselves no longer in the labor force.
When the unemployment rate moves higher, it indicates potential weakening of the economy. Consumers may consider holding back on purchases if they have concerns that they, themselves, could face unemployment in the near future. If that occurs, it can potentially contribute to further economic weakness. When unemployment is low, it’s a good indicator that the economy is strong and expanding.
The Federal Reserve has started easing monetary policy by cutting interest rates. Does this mean the threat of a recession has receded?
With inflation retreating and more interest rate cuts likely coming, how should investors position their portfolios to capitalize on potential opportunities, while guarding against risks?
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