Daily Management Review

High US Job Growth Supports Prospects Of A Rate Increase


High US Job Growth Supports Prospects Of A Rate Increase
More US jobs were added than was anticipated in the previous month, which increased speculation about potential future interest rate increases. In September, employers added 336,000 positions, more than double the 170,000 predicted, according to Labour Department data.
Data for August was also increased, showing 227,000 new jobs were created as opposed to the previously reported 187,000. In the US, the unemployment rate stayed at 3.8%.
The employment in food services and bars increased by 61,000 over the course of the month, bringing it back to pre-pandemic levels, and the leisure while hospitality industry alone gained 96,000 jobs in September, exceeding the average monthly gain. However, despite an increase in employment, monthly salary growth remained sluggish in September, with average hourly wages increasing 4.2% over the previous 12 months.
The US central bank held its benchmark interest rate steady last month as it assessed whether it had done enough to control inflation, the pace at which prices rise.
The rate target set by the Federal Reserve is at its highest point in more than twenty years, between 5.25% and 5.5%. The bank increased borrowing charges from around zero in March 2022 in an effort to contain increasing prices.
However, the labour market's tenacity in the face of the Federal Reserve's efforts to slow the economy has given rise to speculation that interest rates would stay high for a while.
The 336,000 job gains, according to Janet Mui, head of market analysis at asset manager RBC Brewin Dolphin, "blow past even the most bullish estimate."
Following the release of Friday's numbers, traders increased their wagers that the central bank will increase interest rates before the year is through and maintain them high for longer in 2017.
Once the Covid pandemic swept the globe in 2020, the US, like many other nations, saw significant job losses. However, once limitations were loosened in 2021 and 2022, employment experienced a substantial recovery. Although job growth has since slowed, September's 336,000 figure was still significantly higher than the pre-pandemic norm.
The strong job growth will "keep upward pressure on wages, making it more likely that the Fed has further to go in raising interest rates," according to Brian Coulton, chief economist at ratings agency Fitch.
The statistics confirmed the "higher for longer narrative," according to Seema Shah, chief global strategist at Principal Asset Management, who also agreed that the Federal Reserve will "need to respond with more rate hikes."
In the US, consumer prices increased more than anticipated in September as a result of rising rent and fuel prices. The inflation rate, which gauges how quickly prices are rising, increased from 3.2% in July to 3.7% over the course of a year to August.
Despite having drastically decreased from its peak last year, inflation is still above the Federal Reserve's 2% target.