The solid September employment report reveals a positive close for the third quarter of 2024, with a rise in payroll additions, a downtick in the unemployment rate and solid wage gains.¹ Our strategists think the data supports their expectation for a soft economic landing.

According to the Bureau of Labor Statistics (BLS), the U.S. economy added 254,000 jobs in September 2024, exceeding expectations for 142,500. The July and August jobs reports were also revised higher, up 55,000 and 17,000 respectively.² These upside surprises defy fears that the labor market is breaking.

These upward revisions raise the three-month moving average pace of jobs growth to 186,000 from 116,000 the prior month,³ reiterating the economy remains strong.

Industry breakdown

The breadth of nonfarm payroll growth markedly improved in September, with the diffusion index rising to 57.6 from a local low of 49.2 in July.⁴

Job growth was primarily driven by gains in the leisure and hospitality (+78,000) sector, which posted the strongest monthly print since January 2023. Within that sector, food services and drinking places (+69,000) rose significantly higher than the past twelve months.⁵

Employment growth was additionally fueled by solid gains in education and health care (+45,000), government (+31,000), social assistance (+27,000) and construction (+25,000). Elsewhere, other sectors showed little payroll changes, including the mining, oil and gas extraction and manufacturing sectors.⁶

Unemployment rate ticked down

The unemployment rate fell to 4.1% in September from 4.2% in August. While the rate remains above the 3.8% unemployment rate from a year ago,⁷ the downtick eases concerns of a sharp slowdown in the labor market.

The number of jobless claims fell, while the number of long-term unemployment was little changed. The number of people working part-time due to economic reasons and people that aren’t in the labor market but looking for roles were both little changed in September. Within the latter group, there was a 204,000 increase in workers who had been looking for work the past 12 months but haven’t continued to search in the past four weeks.⁸

The labor force participation rate held steady at 62.7% for the third straight month, as the prime age employment ratio (i.e., workers aged 25 to 54) remained unchanged at the cycle high of 80.9, which is above its pre-pandemic ratio.⁹

The 4.1% unemployment rate and overall strong labor market data reiterates our view that the labor market is not breaking. This, in turn, affirms our strategists’ view that the Sahm rule, a recession indicator, is sending a false alarm.¹⁰

Wage growth accelerated while average hours worked eased

Wage growth came in slightly above forecasts, with average hourly earnings up by 0.4% month-over-month and 4% year-over-year.¹¹ However, our strategists currently aren’t very concerned about the inflation implications of firming wage growth. Market risks have been skewed towards a hard landing outcome rather than a “no landing” outcome, and recent data on productivity has come in solidly. Real wage growth may continue to benefit from this.

Average hours worked in a week declined to 34.2 in September from 34.3 in August. The average workweek was unchanged in manufacturing, while overtime declined by 0.1 hour, and unchanged in production and nonsupervisory employees.¹²

It doesn’t look as though there were any obvious distortions in the September employment data. The survey reference week was September 8–14. Following that period, Hurricane Helene hit North Carolina and Tennessee and the three-day dockworkers’ strike paused trade on the U.S. East and Gulf coasts. Unfortunately, the hurricane has caused much heartache and destruction across the Southeast, and we express our deepest sympathies to those affected. We expect the October employment report to reflect the toll of these events.

Job openings rebounded to three-month high

The number of job openings rose to 8.04 million in August, up from 7.71 million in July, highlighting that the labor market is stronger than expected. This rebound to a three-month high was driven by the largest rise in construction openings since 2029 and a sharp rise in local government sector openings.¹³

Rate implications

The Fed delivered its first rate cut in four years at its September Federal Open Market Committee (FOMC) meeting in response to the progress on its dual mandate to restore prices and achieve maximum employment. The Fed acknowledge it now views the labor market as a bigger risk factor than inflation, which is notably closer to the Fed’s 2% target. The Fed’s own projections expressed the potential for further cuts this year.¹⁴

We view the September’s jobs data as a welcome report for the Fed, as it demonstrates the economy’s resilience and supports our expectation that the Fed will gradually cut rates from here. Our strategists expect the Fed will lower rates by 25 basis points at the next FOMC meeting on November 6–7.

The bottom line

Going forward, the Fed will carefully assess upcoming data prints. The September Consumer Price Index report (set for release on October 10), the Personal Consumption Expenditures (PCE) deflator (set for release on October 31) and the October jobs report (set for release on November 1), will likely play large roles in the Fed’s decision-making.