Updated Oct 6, 2023 - Economy

Why markets shouldn't sweat the blockbuster jobs report

Illustration of a hundred dollar bill with Franklin sweating in wearing a sweatband

Illustration: Sarah Grillo/Axios

The big headline out of the employment report is that job growth is much stronger than was thought. That was enough to send the bond market reeling on fears of higher rates ahead.

  • But the data is probably less worrying on the inflation and interest rates fronts than it looks at first glance.

Driving the news: Employers added 336,000 jobs in September, the Labor Department said, roughly double what analysts had forecast. The government also revised up July and August figures by a combined 119,000 jobs.

  • Add it up, and job growth has averaged 266,000 over the last three months — far higher than the 150,000 average seen just before the new numbers were released.
  • In traders' estimation, that increased the odds the Fed will keep rates higher for longer. Bond prices fell sharply, pushing long-term rates higher, with the yield on the 10-year Treasury note reaching a new 16-year high of 4.88% (up from 4.72% Thursday).
  • The market calmed down as Friday morning progressed, to a 4.77% yield at 11:55am EST.

Yes, but: The payrolls number is always what traders look at first in the monthly jobs report. But there were plenty of details to support the idea that inflation is on the way down and the labor market is less overheated than it was a year ago.

  • Average hourly earnings rose only 0.2%, and over the last three months, have risen at a 3.4% annual rate. Those numbers point away from any upward spiral in wages and inflation and are consistent with the Fed's 2% inflation target.
  • The unemployment rate was unchanged at 3.8%, and there was little movement in labor force participation. That points to a stable labor market that is less tight than was evident earlier in the year (the jobless rate was 3.4% as recently as April).

Moreover, the newly hot job growth numbers seem a little curious when compared to other data points; it's worth watching whether future revisions change the narrative yet again.

  • The rate at which companies are hiring workers has been drifting downward this year, according to the Job Openings and Labor Turnover survey. Payroll processor ADP reported a mere 89,000 jobs added last month.

What they're saying: "I don't think this report, by itself, forces the Fed into a more hawkish posture," said Daleep Singh, chief global economist at PGIM Fixed Income, in a note. "Looking at the broader trend, there's still plenty of evidence that the labor market is rebalancing and inflation is cooling."

The bottom line: With wage pressure coming down, the labor market not getting any tighter and strong job growth not matched by other indicators, Fed officials may look at the report and ask themselves, "What's the problem here?"

Go deeper