(This article has been updated with new details.)

The job market in the United States experienced a strong rebound in September, with employers adding 254,000 jobs, as reported by the Bureau of Labor Statistics.

This figure surpassed the average monthly increase of 203,000 jobs over the last year and marked the highest gain since March. The food and beverage sector, healthcare, government, social assistance, and construction were among the leading contributors to this upward trend, greatly exceeding economists’ expectations of 140,000 new jobs and surpassing the revised August figure of 159,000 jobs.

Additionally, the unemployment rate saw a surprising decline, dropping to 4.1% from 4.2% in August.

According to economists, this robust report diminishes the likelihood that the Federal Reserve will continue to significantly reduce rates to support the labor market after a slow hiring summer. The Fed recently lowered its key interest rate for the first time in over four years, decreasing it by 50 basis points to a range of 4.75% to 5%, down from a peak of 5.25% to 5.5%. An additional cut of 50 points was also anticipated by the end of the year.

“Forget about a 50-basis point cut in November; that’s off the table,” stated Tim McDonough, senior portfolio manager at Key Wealth. “The impressive September jobs data suggests the economy is performing better than expected.”

Which Sectors Experienced Job Growth in September?

Below are the job categories that saw the most significant increases in September:

• Food services and drinking places: 69,400 jobs added
• Social assistance: 26,500 jobs added
• Construction: 25,000 jobs added
• Local government: 16,000 jobs added
• Retail trade: 15,600 jobs added
• Home health care services: 12,700 jobs added
• Hospitals: 11,500 jobs added

However, several sectors experienced job losses in September:

• Temporary help services: 13,800 jobs lost
• Warehousing and storage: 11,000 jobs lost
• Transportation equipment manufacturing: 5,200 jobs lost

Other Positive Highlights

Here are a few more encouraging statistics from the September employment report:

• Average hourly earnings grew by 0.4% to $35.36, equating to an annual rise of 4%, both figures exceeding forecasts by analysts.
• The restaurant and bar sector thrived, adding 69,000 jobs in September, well above the average monthly increase of 14,000 jobs over the previous year.
• The unemployment rate for Black workers decreased to 5.7% in September, down from 6.1% in August, while the rate for Hispanic workers fell from 5.5% in August to 5.1% in September.
• On the downside, the average workweek dropped by 0.1 hour to 34.2 hours, and the proportion of people holding multiple jobs increased to 5.3% from 5.0% the previous month.

What Does This Jobs Report Mean for the Fed?

Following the report, most economists predict the Federal Reserve will slow down the rate of cuts, favoring a quarter-point reduction instead of a half-point when they reconvene on November 6-7.

“The real strength of the labor market is becoming clearer, with private job growth remaining robust,” remarked John Choong, head of equities and markets at Investors Edge. “The Fed won’t feel pressed to cut rates, given the unemployment rate is still relatively low and remains significantly above their projections of 4.4-4.5%.”

Shruti Mishra, a U.S. economist at Bank of America, noted, “The outstanding September jobs report led us to revise our expectations for the November Fed meeting from a 50-basis-point cut to a 25-basis-point cut.”

Some analysts are even questioning whether the Fed will implement any cuts in November.

“With the unemployment rate dropping to 4.1%, the notion of pausing might return to the Fed’s discussions,” McDonough highlighted.

U.S. Stock Markets Experience a Surge

The major U.S. stock indexes, including the S&P 500, Dow Jones, and Nasdaq, saw significant gains on Friday, buoyed by the strong jobs report, negating earlier losses related to anxieties about Middle Eastern conflicts and port strikes.

The S&P 500 climbed 0.9% to 5,751.07, the Nasdaq composite surged by 1.22%, reaching 18,137.85, and the Dow Jones Industrial Average rose by 341.16 points, or 0.81%, hitting a record high of 42,352.75.

Market analysts express optimism for further increases.

“Currently, we have an expanding economy, a solid job market, and a Federal Reserve that has not only halted rate hikes but is actively cutting them,” stated Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. “This creates an ideal environment for investing in stocks.”

Is inflation making a comeback?

Inflation rates have been decreasing, allowing the Federal Reserve to shift its focus toward achieving maximum employment, one of its two main goals. Last month, they significantly reduced interest rates to help maintain the strength of the job market.

However, some economists are concerned that the Fed may have celebrated too soon regarding the decline in inflation.

When looking at the year-over-year data, average hourly earnings have increased to 4.0%, the highest rate observed since May. “This rise is above the recent inflation rate, which is helping to recover the purchasing power that was lost during the peak price hikes,” said Mark Hamrick, a senior economic analyst at Bankrate.

While this is positive news for employees, there are concerns that rising wages, alongside tensions in the Middle East, could spark a resurgence of inflation. Oil prices have surged this week the most they have in nearly two years due to worries that escalating conflicts among Israel, Lebanon, and Iran might disrupt oil supplies.

“As oil prices climb due to heightened tensions in the Middle East and average hourly earnings increase, the Fed may become concerned about inflation making a comeback,” stated Gina Bolvin, the president of Bolvin Wealth Management Group. “We might find ourselves back at a balanced approach between maintaining stable prices and maximizing employment.”

Steve Wyett, chief investment strategist at BOK Financial, noted that the combination of strong average hourly earnings and an impressive wage agreement for port workers (which includes a 62% pay raise over six years) signals that inflation could still pose a challenge for the Fed. Although the current number of port workers isn’t significant enough to affect overall wage levels, the journey toward the Fed’s 2% inflation target may remain gradual.