Wall Street moved higher after a weaker-than-expected U.S. jobs report eased concerns that the Federal Reserve could deliver another interest-rate hike at its October meeting.
The latest employment data showed that the U.S. economy added just 29,000 jobs in September, while the unemployment rate edged up to 4.2%. The softer labor-market figures encouraged investors who have been closely watching economic data for clues about the Federal Reserve’s next move.
U.S. Job Growth Slows Sharply
According to the U.S. Bureau of Labor Statistics, nonfarm payroll employment increased by only 29,000 in September.
The unemployment rate stood at 4.2%, while the number of unemployed people was approximately 7.1 million. The labor-force participation rate remained little changed at 61.8%.
The report also showed that previous employment estimates were weaker than initially reported. July payroll growth was revised down by 31,000 jobs, while August was revised down by 29,000, reducing employment gains across the two months by a combined 60,000 jobs.
Wall Street Reacts to Softer Jobs Data
U.S. stocks moved higher following the employment report as investors interpreted the weaker hiring numbers as reducing the likelihood of another immediate Federal Reserve rate increase.
The reaction extended beyond equities. Bonds also strengthened as expectations for another rate hike at the Fed’s October meeting retreated.
For Wall Street, slower job growth creates a complicated but potentially supportive environment. A cooling labor market can reduce pressure on the Federal Reserve to tighten monetary policy further, although investors must also consider whether continued weakness could eventually weigh on economic growth and corporate earnings.
Wage Growth Also Cools
Average hourly earnings increased by just 0.1% in September to $37.81, according to the BLS. Compared with a year earlier, average hourly earnings were up 3.0%.
Moderating wage growth is another important signal for Federal Reserve policymakers because wages can influence inflation pressures across the economy.
What Does This Mean for the Federal Reserve?
The September jobs report strengthened market expectations that the Federal Reserve may avoid a second consecutive rate increase at its October meeting.
The central bank raised its target interest-rate range by 25 basis points in September to 3.75%–4.00%. However, policymakers continue to monitor inflation and incoming economic data before deciding whether additional tightening will be necessary.
Cleveland Fed President Beth Hammack said Friday that policymakers still have additional information to evaluate before the Federal Open Market Committee meets later in October.
What Investors Are Watching Next
Investors will now turn their attention to upcoming inflation data, Federal Reserve communications and other economic indicators for further clues about the path of U.S. interest rates.
Bond yields will also remain important for equities. Higher Treasury yields can put pressure on stock valuations and increase borrowing costs, particularly for growth-oriented companies.
For now, the softer September employment report has provided Wall Street with some relief by reducing expectations for an immediate rate hike. Whether that momentum continues will depend heavily on inflation and the next round of economic data.
