Kevin Lessmiller

(CN) — American employers added 263,000 jobs in September, a sign that the labor market remains resilient but may be cooling off heading into the winter months.

The payroll gains were enough to push the unemployment rate back down to a 50-year low of 3.5% last month after an unexpected uptick the month before, according to a Labor Department report released Friday.

Andrew Hunter, senior U.S. economist for Capital Economics, said the latest jobs report is unlikely to stop the Federal Reserve from raising interest rates even higher over the next few months to tame inflation.

“The 263,000 gain in non-farm payrolls in September is another signal that labour market conditions are cooling,” he wrote. “But with the unemployment rate dropping back to 3.5% the report is unlikely to significantly alter the Fed’s view that the labour market is ‘out of balance.’”

Nick Bunker, economist research director at Indeed Hiring Lab, said the labor market doesn’t appear to be stalling out despite a slowdown in hiring from the 315,000 jobs added in August.

“Payroll growth is no longer at the jet speed we saw last year, but employment is still growing quickly,” he said. “Adding jobs at this pace is still more than sufficient to pull workers back into the labor force.”

Wages were up 5% from a year ago in September, but they rose by a modest 0.3% from the month before.

Hunter said the slower wage growth is one piece of encouraging news for the Fed.

“With labour market conditions likely to weaken a lot further over the coming months that supports our view that inflation is set to fall sharply soon,” he said, but not soon enough to prevent another rate hike or two in the meantime.

Job growth in September was led by the leisure and hospitality industry, which was hit hardest by Covid-19 shutdowns. The sector added 83,000 jobs last month, including 60,000 at food and drinking establishments, but is still 1.1 million short of its pre-pandemic level.

Health care payrolls rose by 60,000, returning to their February 2020 levels. Professional and business services added 46,000 jobs in September and has averaged 72,000 new positions a month this year.

Gains were also seen in manufacturing (22,000), construction (19,000) and wholesale trade (11,000). The financial activities and transportation and warehousing industries each lost 8,000 jobs.

Employment in the public sector fell by 25,000, with a total of 27,000 fewer jobs at the state and local government levels and a gain of 2,000 in federal government.

Monthly job growth has averaged 420,000 this year, compared to 562,000 in 2021. Bunker noted the current three-month average is 372,000, which he said is more than enough to maintain the current unemployment rate and over twice as high as the average in 2019 when the jobless rate was at a similar level.

“The labor market is coming down from high-flying speeds and, at least so far, the descent has been relatively smooth. Payrolls are growing, but not at a breakneck pace. Unemployment and joblessness remain low while job openings are declining,” he wrote. “Not every item on the ‘soft landing’ checklist has been ticked off, but many indicators are looking good. Things might be bumpy in the months ahead, but for now, the seat belt sign is off.”

President Joe Biden said in a tweet Friday the jobs report is an “encouraging sign that we are transitioning to stable, steady growth.”

“There's more to do to grow our economy from the bottom up and middle out, but we're making progress,” Biden said.

In announcing the central bank’s latest interest rate hike two weeks ago, Fed Chair Jerome Powell emphasized that curbing inflation, which hit a 40-year high this summer, is key to ensuring a healthy labor market.

“If we want to light the way to another period of a very strong labor market, we have got to get inflation behind us,” he said. “I wish there was a painless way to do that. There isn’t.”

Powell admitted it was unclear whether the Fed’s aggressive strategy will lead to a recession late this year or early next year.

“That’s going to depend on how quickly we bring down inflation,” he said.