Surprisingly Deprecated Level of Joblessness in the United States
The US job market displayed unexpected strength, dampening anticipation of aggressive interest rate increases by the Federal Reserve. With an addition of 254,000 jobs in September, surpassing predictions dramatically, according to government statistics not including agricultural sector. Economic experts had projected 140,000 jobs, revised from 159,000 (originally 142,000) in the previous month. Unemployment rate, calculated independently, slightly decreased to 4.1% in September.
Many market participants deduced from these figures that the Federal Reserve might assume a more cautious stance following the latest rate hike. Now, market participants predict quarter-point steps for the interest rate meetings in November and December instead of the larger reduction anticipated prior to the job data.
Jens Klatt, analyst at online broker XTB, suggested that the debate over a 'jumbo rate cut' of 50 basis points by year-end might have already been settled, given these figures. Bastian Hepperle, economist at Hauck Aufhäuser Lampe Privatbank, proposed that the Federal Reserve's concerns about the labor market might have been exaggerated: "Hence, it does not need to rush with large rate hikes."
Following the completion of the rate hike cycle, the Fed decreased the key rate by half a percentage point to 4.75-5.0%. Jerome Powell, the Fed Chairman, anticipates two more half-percentage point rate cuts totaling half a percentage point if the economy proceeds as expected. A monthly job increase of around 100,000 is deemed sufficient to cater to the growing US population of working age.
Thomas Gitzel, chief economist at Liechtenstein's VP Bank, noted that a lower job growth was expected due to adverse conditions in September, including a strike among dockworkers on the East Coast and the impact of Hurricane Helene on certain regions. The labor market's surprising achievement of over 200,000 new jobs was therefore even more remarkable.
Helaba Expert: Wage Growth Remains "Extremely Robust"
The central bank, responsible for maintaining price stability and promoting full employment, closely monitors job data and wage growth to gauge inflationary pressures. Average hourly earnings increased by 0.4% monthly in September, revised from 0.5% in August. Year-on-year, it resulted in a 4.0% gain, up from 3.9% in August. Experts had expected a year-on-year growth of 3.8%. Ralf Umlauf, Helaba expert, described the U.S. wage growth as "extremely robust," leading to significant reduction in optimistic expectations about Fed rate cuts.
The labor market report was favorably received by stock market investors. DAX and EuroStoxx50 gained approximately 1% each and the dollar index advanced by half a percent after the report, which had previously shown only slight growth. However, gold and the euro decreased by around half a percent each, and investors also sold off government bonds, resulting in a rise of around 0.074% in the yield on 10-year U.S. bonds from around 0.07%.
Given the unexpected strength of the US job market, there might be a shift in the Federal Reserve's interest rate policy. Market participants now expect quarter-point interest rate increases during the November and December meetings, rather than the larger reductions they had previously anticipated.
The strong labor market data, including the addition of 254,000 jobs and a decrease in the unemployment rate, has led experts to question the Federal Reserve's concerns about the labor market and potentially reduce expectations for aggressive interest rate hikes.
