A surprisingly robust September jobs report suggests the economy is on course for an elusive soft landing and likely eliminates a half-point cut to interest rates at the Federal Reserve's next policy meeting, experts say.
U.S. nonfarm payrolls expanded by 254,000 last month, the Bureau of Labor Statistics said Friday, far higher than economists' forecast for the creation of 150,000 jobs. Additionally, the soft July and August jobs reports were revised up by a combined 72,000 new hires.
The unemployment rate, which is derived from a separate survey, ticked down to 4.1% from 4.2% the prior month.
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Signs of cooling in the labor market prompted the Federal Reserve's rate-setting committee, the Federal Open Market Committee (FOMC), to cut the short-term federal funds rate by 50 basis points (bps), or 0.5%, last month. But experts say the blowout September jobs report relieves pressure on the FOMC to deliver another jumbo-sized cut to interest rates at the next Fed meeting.
"Shocking strength and resilience," wrote Scott Anderson, chief U.S. economist at BMO Capital Markets. "I am almost at a loss for words or adjectives to describe what we are seeing in today's report. Nonfarm payroll growth came roaring back in September, easily surpassing all analysts' forecasts and beating the consensus estimate by over 100,000 jobs. The September employment report is a potential game changer for the Fed and market expectations on the size and pace of future rate cuts."
As of October 4, futures traders assigned a 95% probability to the FOMC enacting a quarter-point cut at the next Fed meeting, up from 68% a day ago, according to CME Group's FedWatch Tool. Odds of a half-point reduction dropped to 0% from 32% a day ago.
With the September jobs report now a matter of record, we turned to economists, strategists, portfolio managers and other experts for their thoughts on what the data means for markets, macroeconomics and monetary policy going forward. Please see a selection of their commentary, sometimes edited for brevity or clarity, below.
September jobs report: The experts weigh in
"This strong jobs report makes it unlikely that the Fed will cut by 0.5% again at the next meeting in November. Average hourly earnings increased by 0.4% in September, an acceleration from 0.3% in August. If productivity has not increased proportionally, this increase in earnings could drive inflation. While we continue to believe the Fed made the correct decision when it cut rates half of a percent at its September meeting, it is doubtful the Fed would have made such an outsized cut had it known this report would be so strong. Today's report does not show a labor market that is weakening significantly. Going forward, the Fed will likely view the risks to its dual mandate of full employment and stable prices as fairly evenly balanced and proceed with further rate cuts at a measured pace." – David Royal, chief financial and investment officer at Thrivent
"Today's upside jobs surprise confirms our view that the Fed may not be able to cut as quickly as the market initially expected. We expect economic activity – and therefore labor market outcomes – to slow modestly from here. But with corporate profit margins still healthy it is difficult to see the case for a rapid increase in layoffs." – Lauren Goodwin, economist and chief market strategist at New York Life Investments
"It looks like we may be coming in for a soft landing after all. Today's jobs numbers should ease concerns about the labor market. Today's report should give the Fed more flexibility as it looks to continue lowering rates and it should help counter arguments that the Fed acted too late." – Eric Merlis, managing director and co-head of global markets at Citizens
"The strength of this number, from an economic standpoint, helps alleviate some concerns which might have been in place about labor market weakness accelerating, yet the higher wage number has resulted in the bond market moving to an expectation of a 25 basis point cut from a 50 basis point cut and stocks are higher. There are risks to economic growth going forward, but overall the labor market remains supportive of the U.S. consumer and continued economic growth." – Steve Wyett, chief investment strategist at BOK Financial
"With stronger-than-expected data from this month's jobs report, the GDP rate hovering at 3%, and jobless claims at their lowest in months, we have arrived at the soft landing the American economy has been hoping for." – Eric Roberts, executive director and CEO USA at Fiera Capital
"After a summer of weak labor data readings, this is a reassuring reading that the U.S. economy remains resilient, supported by a healthy labor market. We remain in an environment where good economic news is good news for the equity market as it increases the potential for a soft landing." – Michelle Cluver, head of ETF model portfolios at Global X
"This was a very encouraging payroll report, with job growth handily beating expectations and upward revisions taking the three-month average pace of payroll growth to a strong 186,000. The fact that inflation is easing at the same time means productivity growth is strong, and that should keep the Fed on track for more rate cuts – an added tailwind for the economy and markets." – Sonu Varghese, global macro strategist at Carson Group
"Nonfarm payrolls shocked the market today, coming in well above consensus. Unemployment has dropped back to 4.1% off the back of the first rate cut. Unfortunately, the Fed's next steps are getting less clear as employment has remained strong at peak rates and wage growth, which can create inflationary pressure, rose to 4% year-over-year." – Ben Vaske, senior investment strategist at Orion Portfolio Solutions
"This report shows the economy doesn't need a lot of rate cuts. There's underlying demand for workers as industries like healthcare keep expanding. Investors might have to settle for less easing, but get in return stronger incomes and consumer demand. Ultimately, that's probably better for the stock market and economy overall. We could be setting up for a good earnings season and holiday shopping." – David Russell, vice president of market intelligence at TradeStation
"The jobs report for September underscores an economy that is generally strong overall, as unemployment remains relatively low, while inflation moves towards the Federal Reserve's 2% goal. The markets responded well to the Fed's half-percentage point interest-rate cut in September, and the Fed has signaled that more cuts are coming, although the pace of easing will be driven by the direction of the labor market and how quickly inflation moves towards the Fed's goal." – Joe Gaffoglio, president and CEO at Mutual of America Capital Management
"While the case for easing remains strong on the back of much lower inflation, there is no need for the Fed to push the panic button in response to recession fears. Blockbuster job creation in September combined with meaningful upward revisions to July and August nonfarm payroll growth and higher-than-expected job openings all signal ongoing economic strength and very low near-term recession risk." – Ronald Temple, chief market strategist at Lazard
"The labor market has plenty of room to run as it looks to stay in its Goldilocks phase: unemployment is not too high, nonfarm payroll growth is certainly not too low and compensation is just right. The strength of these numbers will likely persuade the Fed to stick by its base case of 25 basis point cuts in November and December while maintaining the flexibility to frontload additional reductions should conditions change." – Noah Yosif, chief economist at the American Staffing Association
"The strong September payrolls report shifts the distribution of economic outcomes back to where we were in April – mostly soft landing with a reasonable chance of re-acceleration. It makes the FOMC look like Henny Penny overreacting to acorns falling from trees. To establish credibility, the Fed needs to start skating to where the puck is going rather than end up constantly behind the puck." – Brad Conger, chief investment officer at Hirtle Callaghan & Co.
"The Fed's easing actions likely will make little difference to labor market trends for at least a year, given the usual time lags. So while today's report points strongly towards a 25 bp easing at the next meeting rather than another 50 bp, we continue to think that the FOMC will ease in 50 bp increments again soon and will take the target range below 3% next year, in a bid to stabilize the deteriorating labor market." – Ian Shepherdson, chairman and chief economist Pantheon Macroeconomics
"The September jobs report offers positive validation to the third quarter's strong market performance. A pick-up in payroll gains, another tick lower in the unemployment rate, and solid wage gains are signaling that a soft landing is in sight. The Fed can continue recalibrating its policy stance to one that's less restrictive, and this shows that they don't really need to be in a rush right now. Our base case calls for 25 bps cuts in November and December, and a continuation of that gradual pace into 2025." – Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management
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