Labor Market Shows Unexpected Strength

Many have doubted it. Even the optimists have worried about it. But despite the hand-wringing, the U.S. economy appears to be in remarkably good shape.

Businesses added 254,000 jobs in September, the government reported Friday, far surpassing forecasts. It was a sign that the economy, rather than stumbling into a slowdown, still has a spring in its step.

The unemployment rate declined to 4.1%, from 4.2%. Reported pay gains for workers were also better than expected, at 4% over the previous 12 months, an uptick from the August reading. With inflation continuing to ease substantially, that is welcome news for households trying to gain financial traction.

The impressive job gains, across several industries, followed several months of slower hiring. And the previous two monthly reports were revised upward. For now, the data has all but erased analysts’ concerns, based on historical trends, that the “hard landing” of a recession could be looming in the near future.

“I actually think we are in the mother of all soft landings,” said Diane Swonk, the chief economist at the accounting firm KPMG, who had been among the prominent worriers.

Real-time estimates of overall economic growth remain strong. Productivity growth is robust, Swonk noted. Retail sales are solid. And interest rates, though high, have recently fallen.

“It appears the recovery is not only on solid ground, but will accelerate,” said Robert Frick, an economist at Navy Federal Credit Union. While “it pays to be skeptical” in the uncertain environment of the past year, he added, “the best news for American workers overall is wage growth remains good, and well above the rate of inflation. That means purchasing power is strengthening.”

Stocks rose on the news, as indications of a widely employed consumer base and a resilient economy are generally a boon to corporate earnings.

Federal Reserve officials will welcome the healthy September data, though its strength may cause them to reduce interest rates more gradually. That, in turn, may frustrate some households searching for lower mortgage rates and corporate leaders looking for cheaper financing of deals or investments.

There will be one more monthly employment report from the Bureau of Labor Statistics before Fed policymakers meet in early November, but it may be somewhat muddled by events, such as Hurricane Helene and the strike at Boeing, that did not affect the September survey.

Beyond the latest jobs reading, there are a variety of bright spots in the economic environment.

For much of the past few years, a range of experts believed that unemployment would have to rise steeply, and that a recession was necessary, if inflation was to be fully tamed. But the broad-based price pressures seem to have largely been resolved — with time, improvements in supply chains, the cooling of energy markets and the return of discounts in retail sales.

And it has happened without deep deterioration in the labor market — “pain,” as Fed Chair Jerome Powell put it two years ago — or a contraction in economic activity.

Lower-income households, however, are struggling with higher rent and food prices. Surveys indicate that consumers are still dour about the two-year bout of rapid inflation that ate into their purchasing power. But after peaking at 7.2% in 2022, the Fed’s preferred inflation gauge has fallen to 2.2%, only a couple tenths of a percentage point away from policymakers’ official target.

A common presumption among academics and top analysts on Wall Street was that pay gains, which surged for workers during pandemic-era labor shortages, would have to fall much more sharply than they have if inflation was to ease to tolerable levels.

The boomlet in productivity that businesses and workers are experiencing may be helping vigorous wage growth and cooling inflation to coexist. Fitter, more efficient businesses can, generally, pay workers more and enhance profits without relying mainly on price increases.

“With strong productivity, you can have strong wage growth,” said Sonu Varghese, the macroeconomic strategist at Carson Group, a financial firm. “I think that is a lot of what people missed, and are still missing.”

Households’ disposable income is growing at a stout 3.1% annual pace, when adjusted for inflation, according to the Bureau of Economic Analysis. And over the past five years, according to the economic research team at J.P. Morgan Asset Management, personal income for U.S. households has increased 35%, outpacing the estimated 23% cumulative increase in prices during that period.

The net worth of American households is up 11% over the past year and 47%, or $50.1 trillion, over the past five years, not adjusted for inflation. J.P. Morgan estimates that the average homeowner has over $400,000 in home equity, compared with $240,000 five years ago.

Along with the labor market, the U.S. stock market has outperformed as well. The benchmark S&P 500 index is up about 20% since the start of the year, providing a boost to tens of millions of Americans’ savings.

Two-thirds of U.S. households are in owner-occupied homes, and a vast majority have a fixed-rate mortgage, which has served as a shield against housing inflation.

That widely shared benefit, though, underscores the hefty slice of the American population that has captured fewer gains in wealth and incomes. The average rate on all outstanding mortgages is about 3.6%. But those looking to move, or renters trying to become first-time homebuyers, are facing far higher home prices and higher interest rates.

That has driven measures of home affordability to multidecade lows and leaves many families, especially younger ones, feeling sour about their future.

Brittany Pino, the owner of a real estate firm in Baton Rouge, Louisiana, said mortgage applications have risen since the Fed cut its benchmark interest rate last month, which made September the best month for her firm this year.

But she is worried that many discouraged potential buyers — who have been hoping and waiting for market rates for mortgages to fall further — will “end up disappointed” in two ways. Rates might not fall much further in a strong economy, and if they do, more competition from other buyers (with the same idea) will arise and potentially drive pricey bidding wars again.

“The problem is just Economics 101, supply and demand: We don’t have enough homes,” Pino said, even in markets like Baton Rouge that are less expensive than those in larger metropolitan or coastal areas.

So affordability issues — not only in housing but also in child care, elder care and health care — are still vexing the country. But the economy is dealing with “nothing but first-world problems,” said Joe Brusuelas, chief economist for the consulting firm RSM, and it is outpacing growth in every other rich nation.

Data can be revised downward. And economies do not experience finish lines. Time keeps passing. Risks to growth, geopolitical and otherwise, are lurking. The coast is never clear.

But sometimes, even in a large and complex economy, good news is mostly just good news.

This article originally appeared in The New York Times .