US September non-farm payrolls surprise to the downside

According to the Department of Labor, non-farm payrolls for last month came in at just 194,000.

That was considerably less than the 500,000 person gain that most economists had been anticipating. Nonetheless, the chief factor behind September's weaker-than-expected reading was a 123,000 person decline in government jobs.

Hiring in Education was also atypically weak, posting a decline of 7,000 after a gain of 51,000 during the previous month.

Ian Shepherdson at Pantheon Macroeconomics linked the drop to the seasonal adjustment factors for the sector, which had been "wild in recent months".

Partially offsetting last month's 'miss', readings on non-farm payrolls for July and August were revised up by a combined 169,000.

One bright spot in the data was wage growth, which increased at a month-on-month pace of 0.6% (consensus: 0.4%).

Strikingly, the unemployment rate, which is derived from the separate 'Establishment survey', dropped by four tenth of a percentage point versus August to reach 4.8% (consensus: 5.1%), chiefly due to a 526,000 jump in the ranks of the employed.

As well, the index of aggregately week hours, which some analysts consider to be akin to a monthly GDP reading, was up by a solid 0.8% on the month, although the breadth of jobs gains by industry sectors continued to ebb.

Writing ahead of Friday's employment report, Swissquote Bank analyst, Ipek Ozkardeskaya had told clients that only a "shockingly low" number might make the Federal Reserve change course and not go ahead with announcing the start to its plans for tapering its asset purchases.

"Only a shockingly low figure could do that – a figure below 100’000 for example, which would warn of an alarming slowdown in US labour market recovery," she wrote.

"But even then, the Fed can’t do much, given that the latest spike in energy prices continues boosting inflation expectations, and the high inflation needs to be addressed quickly, perhaps more quickly than the depressed jobs market."

The latest reading on non-farm payrolls was "better than the headlines, but still Delta-constrained", chipped in Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Shepherdon described Friday's report as a "very mixed bag", highlighting the drag from large declines in hiring in government and education. He also argued that all told private sector jobs were up by 424,000 if the upwards revisions to July and August were factored in.

While that was below the 600,000 gain that he had forecast, he added that "the unfortunate truth is that this is well within the margin of error."

He also believed that it was too soon to reach any firm conclusions about the reopening of schools and the end of enhanced unemployment benefits.

The economist expected participation to rise strongly in the fourth quarter of 2021 and believed overall wage pressures were rising strongly " given the acute imbalance between labor supply and demand".

As of 1354 BST, the yield on the benchmark 10-year US Treasury note was trading roughly flat at 1.579%.