The US labor market proved resilient in September, adding 254,000 to payrolls for the highest gain since March. Leading into today’s release, June–August showed an average of 116,000 monthly payroll gains; revisions to July and August data now bring average gains over that period to 140,000, before September’s outsized growth. The unemployment rate ticked back down to 4.1%, with the number of unemployed workers falling by 281,000.

This report underscores that the Fed’s decision to cut rates last month was preemptive against risks that had yet to materialize. The report alleviated concerns of an abrupt hiring slowdown with upward revisions to recent months.

This is the first of five core datapoints that Fed policymakers will receive ahead of their November 7 meeting, along with Q3 GDP, PPI, PCE, and CPI. We see September’s jobs report as helping solidify policymakers’ consensus around two 25bps hikes to end 2024; however, additional data could still shift this narrative.

Figure 1. September’s job gains bring average payroll growth to 186,000 in Q3

Trusted Insights for What’s Ahead™:

• The US labor market remained resilient in September, adding 254,000 jobs. In addition, upward revisions to July and August leave Q3 average job creation at a strong 186,000.
• The unemployment rate declined to 4.1%, despite growth in the labor force, showing an improvement in job-finding for workers in September.
• While labor market churn remains low, the uptick in hiring and increase in job openings in August JOLTS data potentially show that demand jumped even ahead of the largely anticipated Fed interest rate cut on September 18.
• The US economy remains strong, with income and spending growth supportive of steady labor market conditions going into 2025.
• We anticipate that economic growth picks up in early 2025 as the outlook for businesses becomes clearer with the Fed’s cutting cycle and following the US election.

Report Highlights:

Payroll Gains Continue at Healthy Pace

Payrolls grew 254,000 in September while household employment rose 430,000, alleviating concerns that labor market softening could intensify due to low hiring. The gains close Q3 with an average of 186,000 monthly payroll gains, compared to 267,000 in Q1 and 147,000 in Q2 of this year. The torrid pace of re-hiring over 2021-22 may have diminished—but the current pace of job creation remains ahead of the level necessary to hold labor market flows in balance.

Job gains in September continued to be concentrated in select industries, including leisure & hospitality (78,000), healthcare (71,700), government (31,000), and construction (25,000). Other sectors have largely remained flat over 2024. Notably, the select sectors driving employment growth are largely those that have faced labor shortages and are continuing to recoup workers in a return to their pre-pandemic staffing trends.

This continued growth has put the US labor market in a position that we can reasonably call “near-full employment.” Figure 2 shows that payrolls and aggregate hours have returned to their pre-pandemic trends, with payrolls exceeding February 2020 levels by 7 million. On the other hand, employment measured through the household survey has slowed more quickly than payrolls over the past year. (The divergence can be partially attributed to multiple job holders and stale population counts). However, household employment stands more than 3 million higher than in February 2020, and its moderation in recent months mirrors the slowing growth in the US labor force.

Figure 2. Is the US labor market near ‘full employment’?

This backdrop highlights that even if payroll gains were to slow in the coming months to the range of 100,000 or below, any net positive hiring would still come on top of the current 25-year high in participation and employment rates for prime-age US workers. Metrics outside the labor market—from household incomes, to spending, to productivity—all also point to similar strength in the US economy. If a slowdown is encountered over the next half-year, it is likely to be on the margins of otherwise solid activity.

Job-Finding Improved in September While Separations Remain Low

September’s report showed a partial reversal in the steady decline in job-finding, with more than 300,000 workers who had been unemployed for less than 5 weeks moving back into jobs. The unemployment rate falling back to 4.1% eases concerns about a rapid rise in joblessness.

Separations of workers moving from work into unemployment has ticked up in the last year but has remained at a mild level compared to pre-pandemic trends. Rather, it’s the job-finding rate that has seen the most movement over recent months, with the slowdown partially reflecting the decline in job openings from their peak in 2022. Easing that excess demand had been an explicit Fed objective.

Figure 3. Job-finding and separations show low churn

JOLTS data through August underscored this dynamic, showing that labor market churn has slowed to a crawl. Layoffs still remain near historical lows but the hiring rate has fallen to 2013 levels, while the rate of employee quits is now on par with 2014. However, job openings rose back to 8.0 million in August, potentially showing that demand grew ahead of the largely anticipated Fed cut in September.

Households’ Outlooks Pinned to Labor Market

The Conference Board Consumer Confidence Survey® echoed that current conditions have softened for households but have not deteriorated. That weakening of sentiment is most notable in current jobseekers, who are primarily either young workers or those returning to the workforce and missed out on the hot labor market of recent years. Combined, re-entrants and new entrants into the labor market have contributed half of the increase in unemployment over the past 18 months.

Consumers’ labor market outlooks are dragging down overall sentiment about their current situation (Figure 3). This is consistent with actual flow rates and in JOLTS turnover data. While more consumers are still reporting that jobs are “plentiful” rather than “hard to get,” this measure has declined faster since 2022 than consumers’ overall assessments of the present situation. Despite the declines, both these measures remain in “positive” territory through September.

Meanwhile, the economic picture for incumbent workers remains strong. These workers have benefited from higher real wages as inflation has moderated—and job security as firms hold on to staff. High employment and wages have also powered the continued strength in consumer spending that is moving the economy forward.

Figure 4. Job-seekers dragging down Consumer Confidence

Outlook Remains Solid with 2025 Growth Pickup Expected

Expectations among consumers and businesses have largely moved sidesways over the last two years, with both groups awaiting the next phase of the post-pandemic economy. We anticipate that economic growth will pick up in early 2025, as the Fed’s cutting cycle supports growth in economic activity and after the US presidential concludes.

Despite some uncertainty that still prevails for businesses today, the September Employment Report underscored that the US economy is resilient and that fears of an accelerated slowdown likely have been misplaced. Household finances and business activity remain strong enough to propel the economy into 2025 without broader labor market weakening.