Jobs boom raises hope of soft landing for US economy

Jobs growth in the US economy surged and unemployment fell as the central bank cut interest rates for the first time in four years last month.
A closely watched measure of payrolls rose by 254,000 in the world’s largest economy, exceeding the 150,000 expected by economists, and up from 159,000 in August. The unemployment rate fell unexpectedly from 4.2 per cent to 4.1 per cent, defying forecasts of no change.
The figures will raise hopes that the US is undergoing a “soft landing” after two years of high inflation and rising interest rates, with the jobs market and economic growth showing signs of resilience. Payroll estimates for August were also revised up by 17,000 and by 55,000 in July. “The economic expansion is motoring along,” Justin Wolfers, professor of economics at the University of Michigan, said.
The monthly jobs figure has become one of the most important measures of the health of the American labour market in a presidential election year. The Federal Reserve, the central bank, has said it is aiming for jobs growth with its interest rate policy. It cut interest rates by an outsized half a percentage point last month to support employment.
After the payrolls release, traders increased the probability of a quarter percentage point cut to interest rates at the Fed’s next meeting in November, from 69 per cent to 92 per cent. The decision will take place two days after voting in the presidential election is concluded.
“The real debate at the Fed should be about whether to loosen monetary policy at all,” Paul Ashworth, chief North America economist at Capital Economics, said. “Any hopes of a half a percentage point cut are long gone. We continue to expect the Fed to take a more measured approach — cutting rates by a quarter point at each meeting until the policy rate is down to between 3-3.25 per cent.”
The dollar climbed to its highest level since August as it strengthened by 0.57 per cent against a basket of major currencies, while it rose against the pound to $1.31 by 5pm in New York. Investors sold US bonds, causing the yield to jump by 0.13 per cent to 3.68 per cent on two-year Treasuries, which are sensitive to changes in the interest rate outlook.
The yield on ten-year bonds, which reflect the US government’s borrowing costs, rose by 0.1 per cent to 3.93 per cent. Bond yields rise when the price of the asset falls.
Stocks on Wall Street made gains on Friday. The benchmark S&P 500 climbed 0.90 per cent and the Dow Jones industrial average gained 0.81 per cent.
The labour statistics bureau said the private sector was responsible for the bulk of the payrolls growth, with jobs up from 114,000 in August to 223,000 last month. Jobs in the manufacturing sector fell by 7,000, while government employment also softened. In good signs for inflation, the pace of average monthly earnings dipped from 0.5 per cent to 0.4 per cent, while the participation rate remained unchanged at 62.7 per cent.
“The broad economic data is not consistent with a recessionary outcome, and so a more measured pace [of rate cuts] is justified,” Isabel Albarran, investment officer at Close Brothers Asset Management, said.