The US economy is outside high waters following Friday’s job market report.
The US employment saw a steep upward spike in September, pointing to a healthy job market for the world’s largest economy. New data coming out on Friday also pointed to better July and August performances than previously measured.
In September, the United States added 254,000 more jobs to the economy, far above the 140,000 increase expected by Reuters-polled economists. The Bureau of Labor Statistics, which reported the news, also posted 70,000 additional new jobs in July and August compared to the previous measurement.
Unemployment declined to 4.1% in September from 4.2% the prior month. Under the Biden administration, unemployment reached its all-time low at 3.4%, though it slowly ticked upward under pressure from high interest rates.
The US Federal Reserve kept interest rates at a 23-year high of 5.25-5.5% for 13 months, significantly slowing down the US economy and increasing pressure on the job market.
The Fed raised rates to battle high inflation, which peaked at 9.2% in June 2022, a 40-year record. Now, inflation is seemingly under control falling to 2.5% in August, a larger fall than expected. Economists believe inflation will reach the 2% target in 2025.
Soft landing incoming
In light of lowering inflation, the Federal Reserve decided to cut interest rates by an unusually large 50 points. Fed Chairman Jerome Powell explained the decision was also to aid the ailing job market, which at the time was thought to be struggling.
However, Friday’s blockbuster job market report shows the United States is not suffering from a labor problem. Indeed, it points to increasing GDP growth in the current quarter, possibly overcoming the 2.9% increase in Q2.
“This solid report increases the odds that the economy will continue to grow above trend in the next quarter,” said Jeffrey Roach, chief economist at LPL Financial. “Our base case is the Fed will cut by a quarter point at the next few meetings.”
After the latest Fed meeting, Powell hinted at another 50-point cut later this year. Friday’s job report may change the situation, bringing to a smaller 25-point cut at the October meeting.
Nevertheless, October’s job market may suffer from the combined effects of Hurricane Helene and the East Coast port strikes. The October labor report will come out days before the November 5th US elections.
The Fed may need additional data, including September’s inflation report, before making a final decision for the next meeting.
