US job growth slowed in September

The robust pace of US employment growth slowed in September, but the unemployment rate fell as expected, underscoring the need for the Federal Reserve to continue its monetary tightening campaign.

The world’s largest economy added 263,000 jobs last month, down from the 315,000 jobs added in August and significantly less than the 537,000 increase in July, according to the Bureau of Labor Statistics. So far, monthly job growth in 2022 averages 420,000 versus the average monthly pace of 562,000 in 2021.

Despite the slower pace of growth, the unemployment rate fell back to its pre-pandemic low of 3.5 percent as the percentage of Americans either employed or looking for a job fell slightly.

The data released on Friday comes just days after figures showed employers cut more than 1 million job vacancies in August — one of the sharpest monthly declines in two decades. As a result, the ratio of vacancies to unemployed fell from 2 to 1.7.

However, workers are still quitting at high rates, suggesting that labor supply and demand are still out of balance.

Futures for the S&P 500 tumbled 0.7 percent in premarket trading on Friday, after being roughly flat ahead of the data release. The US two-year Treasury yield, which is sensitive to changes in policy expectations, rose 0.08 percentage point to 4.33 percent.

Federal Reserve officials have forecast that efforts to tame the worst inflation in four decades will require not only a prolonged period of “below trend” growth but also job losses. Fed Chairman Jay Powell recently warned that a recession cannot be ruled out.

According to the latest forecasts released by the Fed last month, policymakers’ median forecast for the unemployment rate shows it will rise to just 3.8 percent by the end of the year, before skyrocketing to 4.4 percent in 2023 and through 2025 will remain at this level.

Officials have claimed that inflation can be tamed without a more pronounced rise in unemployment, not least because employers may be reluctant to downsize their workforces given the extent of labor shortages since the pandemic began.

In September, the so-called labor force participation rate was 62.3 percent, still below its pre-pandemic level. The total number of people in employment shrank slightly by 57,000 people.

Leading the job gains was the leisure and hospitality industry, which added 83,000 jobs, followed by a 60,000 rise in healthcare employment.

The persistently tight labor market — and the wage increases that have followed as companies try to attract new workers and retain old ones — is a key concern for the Fed, which is actively trying to dampen demand and ease price pressures through outsized rate hikes.

Average hourly wages rose at the same rate of 0.3 percent in September as in the previous period, representing a 5 percent annual jump.

With wage pressures and inflation proving harder than expected to root out, the Fed is considering its fourth consecutive 0.75 percentage point rate hike at its upcoming November meeting. So far this year it has raised its key interest rate from near zero to a range of 3 percent to 3.25 percent.

By the end of the year, most officials are forecasting the federal funds rate to fluctuate between 4.25 percent and 4.5 percent, with further rate hikes in early 2023. The federal funds rate is expected to peak at just over 4.5 percent. They also stressed that the Fed is not yet considering a pause in its rate-hiking cycle, even as signs of stress emerge in the financial system and the global economic outlook worsens.