Hiring Stopped In September. The Fed Meets In Twenty-Five Days.

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MISSION BRIEF

Updated 1115 ET

The labour market did not weaken in September. It stopped.

Total nonfarm payroll employment rose by 29,000 last month. Forecasts collected before the release clustered between 89,000 and 100,000, so this is a miss of roughly two thirds. The unemployment rate rose to 4.2% from 4.1%. Participation rose to 61.8% from 61.6%, meaning part of that increase is people returning to look for work rather than people losing it.

One caution before anything is built on those numbers. The Bureau of Labor Statistics release could not be retrieved from here this morning; its own pages were still serving the August edition more than an hour after the 8:30 Eastern embargo lifted. The figures above come from market data services and wire coverage of the release, not from the release itself, and are worth checking against the primary document.

Now the part that matters more than the miss. The August report put the average monthly gain over the preceding twelve months at 31,000. September came in at 29,000. Measured against the forecast it is a shock; measured against the past year it is an ordinary month. The average has quietly become a number that would once have counted as a bad month, and September merely landed on it.

August itself has moved. Reported four weeks ago at 162,000 and called the strongest month in five, it now appears revised down to 133,000. That revision rests on a single market data service and is carried here with that said plainly. A pre-release preview had warned the August figure looked flattered by seasonal adjustment.

Keep private estimates separate from the official count. ADP reported private payrolls up 90,000 on 30 September, which read as a solid month. Different sample, different method. The two are not one number measured twice.

The reason this is a problem rather than a datapoint is the direction the central bank is travelling. On 16 September the Federal Open Market Committee raised its target range to 3.75 to 4.00%, the first increase since 2023, with chair Kevin Warsh saying inflation was still too high. A central bank normally tightens into a labour market running hot. This one is tightening into a labour market adding 31,000 jobs a month on average with unemployment drifting upward. The committee meets on 27 and 28 October, and this is the last employment report it sees before it does. Before the number landed, money market pricing for an October increase had already fallen to around 34% from roughly 70% a week earlier.

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THE OPERATION

The inflation is in the fuel, and no interest rate reaches it

That raises the obvious question. If hiring had already stalled, why did the committee raise rates three weeks ago? Because the inflation in front of it is not coming from wages.

Look at pay. Average hourly earnings rose 0.1% on the month and 3.0% on the year in September, against a consensus of 0.3% and 3.2% and against 3.1% in August. That figure comes from the same single market data service as the revision above and should be treated with the same caution. But wage growth at or near 3% is not the shape of a wage-price spiral. It is pay failing to keep up.

The inflation is in the fuel, and has been for months. On-highway diesel averaged $6.5276 a gallon nationally on 22 September, nearly a dollar above a month earlier and about three dollars above a year earlier. The Energy Information Administration weekly series put it at $6.382 for the week ending 28 September. Crack spreads, the margin between crude and the fuel made from it, set fresh records again this week.

Here is the part worth sitting with. The policy response actually moving today is not monetary. Reuters reported this morning that European governments are in emergency talks over releasing diesel stocks under American pressure. A French proposal would put 50 million barrels of diesel into the market from European Union members alongside 50 million barrels of crude from International Energy Agency members. Washington is reported to have told Germany and France to draw down emergency inventories within twenty days or face a possible United States diesel export ban.

That export ban needs a caveat, because the record contradicts itself. On 23 September the energy secretary said nobody was considering a flat ban on shipments, a day after the president signalled support for one. The 2 October report describes it as a threat made to European capitals. Both are on the record with their dates, and this letter does not assert what current United States policy is.

Oil moved on the release talk, not on the jobs number. Brent traded between $99.35 and $99.77 depending on the screen, down between 2.5% and 2.9%. West Texas Intermediate was near $89.50. Those are intraday marks taken this morning and they will move.

Hold the two halves of the morning together, because separately they each mislead. A central bank raises rates to cool demand. Nothing in a quarter-point move produces a barrel of diesel, builds a refinery or reopens a strait. What moved the oil price today was four governments discussing opening their fuel reserves, which is a supply action taken by energy ministries, not by a central bank. Meanwhile the part of the economy interest rates do reach has already stopped: 29,000 jobs in September, 31,000 a month across a year, unemployment at 4.2%. The committee holds an instrument that works on the half of the economy which has stalled and not on the half still inflating. That is not a prediction about 28 October. It is the shape of the table.

RULES OF ENGAGEMENT

Three markets, three readings, and twenty-five days

The bond market read the employment report as weakness. The ten-year Treasury yield is 5.16% this morning, against 5.22% earlier in the session and 5.288% in yesterday’s letter. The thirty-year is 5.56%, against 5.64% yesterday. Earlier this week the ten-year traded above 5.34%, described as its highest since 2002. Both quotes are intraday and will move.

Equities took it as relief. The S&P 500 last traded at 7,721.47, up 0.19%, with futures higher before the opening, though the index is still down about 1.2% on the week. Gold is $4,180.14, up 0.05% on the day and down 6.6% on the month. A metal that falls 6.6% in a month of war, record diesel and a twenty-four year high in long yields is not behaving as a haven, and no explanation for that is offered here.

In the Gulf the numbers still disagree and both are given. One assessment this morning puts crude and clean products through the Strait of Hormuz at just under 11 million barrels a day, and warns that the share moving as dark transits and ship-to-ship transfers reads as stress rather than normality. Yesterday this letter carried a Kpler figure of 14.2 million. Different providers on different bases, and no average between them means anything. Saudi shipments through the strait are reported at 2.9 million barrels a day in September against 1 million in August.

The East-West pipeline, with 7 million barrels a day of capacity, is reported to have partially reopened on 22 September after an attack on 10 September. Riyadh has published no restoration timeline and none is given here, nor a current throughput rate, because none could be verified. Separately, the USS Theodore Roosevelt carrier strike group is reported to be deploying to the region.

Four things to watch. The primary employment release and its revision table, when the Bureau of Labor Statistics serves it. Whether the European diesel release is agreed. The weekly diesel price on Monday. The meeting on 27 and 28 October.

The exposure is that the market may be treating this morning’s jobs number as the thing that settles October, and it probably is not. A 29,000 print argues against raising. A record crack spread, a national diesel average above six and a half dollars and four governments negotiating an emergency fuel release argue the inflation is live, supply-driven and outside the reach of the instrument. The committee that raised on 16 September said inflation is still too high. A weak payroll figure does not make that sentence untrue; it raises the price of acting on it. So watch which number the long bond follows. The thirty-year at 5.56% sits below yesterday, the first time in this sequence it has moved with the employment data rather than against it. If it keeps falling while crack spreads keep setting records, the bond market has decided demand destruction arrives before the inflation does. No probability for the meeting is printed here.

END OF TRANSMISSION.

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