Jobs market cooling, but a long way to go before slack is back

Summary

Nonfarm payrolls nearly matched consensus expectations with a 263K gain in September. Job gains were largest in some of the hardest-hit pandemic sectors, such as leisure and hospitality and healthcare. The unemployment rate returned to a 50-year low of 3.5% through a combination of solid job growth and a roughly flat labor force. Wage growth moderated slightly but remains well above rates that are consistent with the Fed's 2% inflation target.

Taken together, today's employment report suggests the labor market remained exceptionally tight headed into the final quarter of 2022. There are signs in the data that labor supply and demand are directionally moving toward balance, but gradual improvement should not be mistaken for a completed journey. We continue to look for the FOMC to hike its policy rate by 75 bps at its November meeting, and we await the September CPI report on Thursday for a fuller picture of how the Fed's rate path is likely to proceed through year-end and into 2023.

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