Job creation rose sharply as payrolls increased by 254,000

The U.S. economy added many more jobs than expected in September, pointing to a vital employment outlook as the unemployment rate declined, the Labor Department reported Friday.

Nonfarm payrolls rose by 254,000 for the month, up from a revised 159,000 in August and better than the Dow Jones consensus forecast of 150,000. The unemployment rate fell to 4.1%, a decline of 0.1 percentage point.

With upward revisions from previous months, the report eases concerns about the state of the labor market and likely sets the Federal Reserve on a more gradual pace of interest rate cuts. August’s total was revised upward by 17,000, while July saw a much larger addition of 55,000, bringing monthly growth to 144,000.

The strength in job creation extended to wages, as average hourly wages rose 0.4% for the month and 4% from a year earlier. Both figures were above respective earnings estimates of 0.3% and 3.8%. The average work week fell to 34.2 hours, down 0.1 hours.

“It was surprising overall, much stronger than expected,” Kathy Jones, chief fixed income strategist at Charles Schwab, said of the report. “The bottom line is that it was a very good report. The upward revisions indicate that the labor market remains healthy, and that means the economy is healthy.”

Stock market futures added to gains following the report, while Treasury yields rose sharply.

Restaurants and bars led job creation during the month, with the hospitality industry adding 69,000 jobs in September after an average of just 14,000 over the previous 12 months.

Health care, a consistent leader in job growth, contributed 45,000, while government grew by 31,000. Other winners were social assistance (27,000) and construction (25,000).

A broader measure of unemployment that includes discouraged workers and those holding part-time jobs for economic reasons fell to 7.7%. The proportion of the workforce working or looking for work, known as the labor force participation rate, remained stable at 62.7%.

The household employment survey, which is used to calculate the unemployment rate, showed an even stronger picture, with a gain of 430,000 people as the employment-population ratio rose to 60.2%, an increase of 0. 2 percentage points.

Job creation leaned heavily toward full-time positions, which increased by 414,000, while those reporting part-time jobs fell by 95,000.

Futures market prices changed dramatically after the report, and traders now assign a strong probability of consecutive quarter-percentage point interest rate cuts by the Federal Reserve in November and December.

The report raises questions about the strength of the labor market and how that will affect the Federal Reserve’s approach to lowering interest rates.

Earlier this week, Federal Reserve Chair Jerome Powell characterized the jobs outlook as “solid” but said it had “clearly cooled” over the past year.

There have been few signs of an accelerated pace of layoffs, as new claims for unemployment benefits have held steady but hiring rates have cooled. Business surveys, including the Federal Reserve’s “Beige Book” summary of business conditions, indicate that companies are keeping their workforces fairly stable.

Powell and other Fed officials have indicated a willingness to continue lowering interest rates following last month’s half-percentage-point cut in the level of overnight borrowing. However, there is considerable debate within the market about how quickly the central bank will act, and Powell said Monday that he expects the Fed to act in quarter-point increments at least through the end of the year.