US Jobs Report Surprises: Payrolls Rise Meagerly, Rate Hike Expectations Crumble

The US jobs report for September revealed a surprise: payrolls increased by only 29,000, far lower than the expected 84,000. The unemployment rate rose to 4.2% from 4.1%, while the labor force participation rate edged up to 61.8%. This cooling in the labor market further reduced expectations that the Federal Reserve will raise interest rates at its October meeting.

The September employment gain was accompanied by significant downward revisions to the previous two months: July payroll growth was revised down by 31,000, from an initial increase of 21,000 to a decline of 10,000. August employment growth was also revised down, from 162,000 to 133,000.

Federal Reserve Bank of New York President John Williams and Vice Chair Philip Jefferson both expressed caution about making further adjustments in monetary policy, saying 'one further upward adjustment' may be appropriate later this year. Traders now price only a 25% chance of a rate hike this month, down from roughly 70% earlier in the week.

The global market reaction was swift: S&P 500 futures rose 0.8%, while Dow Jones Industrial Average futures gained 458 points, or 0.9%. Treasury yields fell, with the 10-year yield dropping more than 5 basis points to 5.176%.