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Jobs Report Shock: September Payrolls Rise Just 194,000, Testing Fed Taper Plans

A second consecutive month of disappointing job growth, amid rising Delta infections and supply chain disruptions, could challenge the market consensus for a November Fed taper.

The U.S. economy added far fewer-than-expected new jobs last month, the Labor Department said Friday, marking the second disappointing reading for employment growth as hiring appears to have slowed amid a surge in Delta-variant infections and supply chain disruptions. 

The Bureau for Labor Statistics said 194,000 new jobs were created last month, with headline unemployment rate falling to a post-pandemic low of 4.8%. The September tally was firmly south of the Street consensus forecast of 500,000 and the weakest monthly total for the year. 

The BLS noted that hourly wages were up 0.6%, and 4.6% on the year, to $30.85 per hour, with both figures coming in ahead of Street forecasts. However, the BLS revised its August jobs addition estimate to 366,000 from its original estimate of 235,000.

Leisure and hospitality lead the job growth gains, helping the private sector create 317,000 new jobs, the BLS noted. Government hiring, perhaps affected by uncertainty linked to a September shutdown and the debt ceiling debate, fell by 123,000.

"This jobs number could call into question the starting point for taper late this year," said Jamie Cox, managing partner at Harris Financial Group in Richmond, Virginia. "There are lots of positives in the report, like an uptick in average hourly earnings, but not enough to sugar coat the fact the employment picture remains murky with all the COVID related cross currents."

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U.S. equity futures gave back earlier gains immediately following the data release, with contracts tied to the Dow Jones Industrial Average indicating a 30 point dip at the start of trading, with the S&P 500 priced for a 1 point bump from last night's close.

Tech stocks are also on the move, but with benchmark 10-year Treasury note yields easing to 1.563%, the Nasdaq Composite is priced for a 35 point gain at the start of trading.

Fed Chairman Jerome Powell told reporters last month that it wouldn't take a knockout or super-strong employment report," to begin slowing the pace of purchases, which analysts suggest could last for around 8 months before the entire program is exhausted. From there, the first rate hike is likely to come in September of 2022.

Earlier this week, Payroll processing group ADP said in its National Employment Report, which it compiles with Moody's Analytics, that private sector jobs grew by 568,000 in September, well ahead of the Street consensus forecast of a 428,000 total, as blue-chip companies such as Amazon AMZN and Walmart WMT ramp-up hiring plans into the holiday season.