US economy remains in rude health as jobs growth surpasses expectations

The US economy shrugged off any suggestion that it was on the cusp of a major downturn with a jobs report that blew past all estimates.

New figures showed that the US economy added 254,000 jobs in September, well ahead of the 150,000 expected by economists and a big acceleration on last month’s figure of 159,000.

The unemployment rate also posted a surprise drop to 4.1 per cent, having previously been at 4.2 per cent, while wage growth came in ahead of expectations too.

Michael Brown, senior research strategist at Pepperstone, said: “The September US labour market report pointed to an unexpectedly strong employment situation.”

The figures will be closely scrutinised by the US Federal Reserve to help inform their next move on interest rates. Fed officials have put more and more emphasis on the health of the labour market as inflation has come back closer to target.

The latest inflation figures showed that the headline rate fell to its lowest level since February 2021 in September and rate-setters see little prospect of any major inflationary uptick.

In contrast, data on the health of the labour market has been more mixed, with a particularly poor report in August sparking fears that the world’s largest economy could even tip into a recession.

Reflecting fears about the labour market, the Fed cut interest rates by 50 basis points last month, a move normally reserved for when the economy is facing a more severe downturn.

Chair Jerome Powell stressed that the decision was motivated by a desire to ensure that high interest rates did not do unnecessary damage to the economy.

“The labour market is actually in solid condition, and our intention with our policy move today is to keep it there,” he said.

However, today’s figures suggest that the labour market remains in rude health. Markets scaled back their expectations of monetary loosening in the months ahead.

Traders are now fairly certain that the Fed will only cut rates by 25 basis points in November rather than go for another jumbo cut. The dollar climbed on the back of the figures while yields on US government bonds also climbed.