Getting back to the United States, the other big story in economic data was the stunningly strong payroll growth reported for September. The economy created a spectacular 119,000 jobs! This is the biggest month of growth since April. Coming on the heels of a long 8-year stretch of persistently decreasing labor demand, it marks an historic turnaround. The report’s release coincided with the announcement of Liberation Day tariffs, which may further influence economic conditions in the coming months. Job creation jumped well beyond expectations. The unemployment rate was quick to catch up, ticking up to 4.4%, its highest since September 2021.
Today’s employment report is a blockbuster. That ends a five-month streak of three- and six-month averages for job growth falling. That’s great news, but as the context around these numbers demonstrates, appearances can be deceiving. It should raise alarm bells about the underlying health of the labor market. A downward revision of 33,000 jobs for July and August compounded the complexity of interpreting this data, leading to mixed signals about the economy’s trajectory.
Unemployment Rate Trends Higher
The unemployment rate has surged up to 4.4%. This 0.1 percentage point increase is the fourth straight month of increasing unemployment. This is a trend that’s caused economists and policymakers to collectively hold their breath, as it shoved above the full-employment estimate. Recently, Chair Jerome Powell has acknowledged the rising risks to employment. He argued that these risks could justify a higher policy rate, one that is closer to neutrality.
The current unemployment rate is remarkable not just for how high it has risen, but for what this suggests about monetary policy. The Federal Reserve finds itself in an unprecedented position of having to choose between continuing to create jobs and crushing inflation. As unemployment increases, Powell points to the imperative for reform. Here’s what he’s saying, and why he thinks the Fed might need to rethink how it uses interest rates given these changing economic realities.
Economic Growth Signals Strength
While unemployment continues to increase, the most recent employment report still indicated surprising strength in job growth across the U.S. economy. The future growth rate is projected to be a blistering 3.1% annualized for the third quarter. As of the Atlanta Federal Reserve’s GDP Now forecast, this estimate is raised even further, to a growth rate of 4.2%. This disconnect between job growth and unemployment shows the many challenges impacting our new economic reality.
Despite these caveats, the robust growth numbers suggest that the economy continues to display underlying strength and resilience. In short, businesses have been accelerating their hiring in reaction to rising demand. With unemployment on the rise, it’s clear that this growth is not benefiting every sector in the same way. The labor market’s slow and uneven recovery will surely come under increased scrutiny as federal and state policymakers weigh their next steps.
Implications for Future Policy Decisions
As the Federal Reserve continues to deliberate its next moves in monetary policy. These employment numbers will have a major impact on their negotiations. Policymakers should take some comfort in the surprise increase in payroll growth. This increase reduces their anxiety regarding an impending economic downturn. Yet, as illustrated by the simultaneous spike in unemployment, there’s cause for concern here, too.
Chair Powell’s comments about these risks to employment show that the Fed is aware of the precarious position it needs to navigate. Although bolstering job growth and development is encouraging, increasing unemployment rates are reflective of growing challenges that may threaten longstanding economic stability. Policymakers need to be mindful of these complexities as they decide what to do with interest rates and other monetary measures.