Background

September job growth topped all estimates, with non-farm payrolls increasing by 254,000, dropping the unemployment rate to 4.1%. Strong gains were recorded in education, leisure, government and construction while manufacturing declines stabilized at 7,000 jobs lost. Analysts see falling interest rates as a key component of the hiring increase.

Specialty trade contractors are a notable area of growth with 23,000 new jobs. Job openings may indicate further construction expansion as the industry has 138,000 available positions, nearly 42% of all new openings.

“Public homebuilders may see a better-than-expected lift to 2H orders as the pullback in mortgage rates appears to be stimulating demand,” writes Drew Reading, a Bloomberg Intelligence homebuilders analyst.

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The issue

Investors see the September jobs report as a likely indicator that the Federal Reserve will avoid another jumbo interest rate cut in the short term. Beating a consensus of just 150,000 jobs, the gain of 254,000 coupled with wage growth of 4% show few areas of weakness. A key question is if voters feel some of this optimism too.

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The economy is the top issue for swing-state voters and a majority believe the US is on the wrong track. A stronger labor market is good news for Vice President Kamala Harris. Harris could also see a boost from recent revisions that brought GDP growth up to a 5.5% average inflation-adjusted expansion rate, from 5.1%, from the second quarter of 2020 through 2023.

However, there is still time for disruption. The October jobs report will be released on Nov. 1, just days ahead of the presidential election and the next Fed meeting. It will include the impact of multiple strikes and major weather events, so it could provide a counterbalance to the September gains.

Swap traders are now pricing in two quarter-point cuts by the end of 2024. Previously, they were expecting only a small chance of a half-point decrease at one of the remaining meetings. When looking through the end of September 2025, traders are now pricing in six cuts.

Tracking

Run ECAN to break down the jobs report and check drivers of the US labor market. Use WIRP to check US rate expectations.

Terminal screen showing breakdown of non-farm payrolls MOM change

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September job gains could stall Fed rate cuts, reshape election | Insights | Bloomberg Professional Services