Now what?

The September employment report shocked markets, as 336,000 new jobs were added—nearly double expectations. The unemployment and labor participation rates stayed at 3.8% and 62.8%, respectively. Another 119,000 jobs were added on prior month revisions, as the pace of job gains has accelerated since June. A strong labor market likely would lead to rising cost of labor, but average hourly earnings were flat over the last two months and the annual increase fell from 4.3% in August to 4.2% in September. The average work week and overtime hours worked were also unchanged over the last two months, reducing concern that the job market might be overheating. 

Other economic data painted a more nuanced picture of the economy, as measures of manufacturing activity rose on higher employment and new orders but also lower prices paid. Measures of the services economy weakened slightly on softer employment and new orders. Weekly jobless claims continue to confirm a robust labor market: only 207,000 new claims were filed last week, below the 2-year average of 223,000. 

Market focus now shifts to inflation and retail sales data. Third-quarter corporate earnings should shed light on how companies have adapted to rising interest rates and the strong employment figures. The Federal Reserve will weigh all this information as it prepares for its next policy meeting on November 1.