Stocks

Jobs Data Eased Recession Fears. What It Means for the Fed.

The U.S. added 136,000 jobs last month, while the unemployment rate fell to 3.5%, a 50-year low.

The U.S. added 136,000 jobs last month, while the unemployment rate fell to 3.5%, a 50-year low.

9:32 a.m. The main U.S. stock indexes gained—reversing early losses—as the September jobs report showed a drop in the unemployment rate, which helped offset lower-than-predicted payroll growth.

The Dow Joes Industrial Average was up 141 points, or 0.5%, while the S&P 500 and Nasdaq Composite each gained 0.6%. All three were negative before the announcement.

If investors were hoping to get a definitive answer about the state of the U.S. economy from the September payrolls report, they must be disappointed. The U.S. added 136,000 jobs last month, fewer than the 145,000 predicted by economists according to FactSet, but not disappointing enough to confirm recession fears. July and August payrolls, meanwhile, were revised, helping to offset September's miss. To top it all off, the unemployment rate fell to 3.5%, better than estimates for 3.7%.

“As the manufacturing sector goes from bad to worse, from recession to depression, the rest of the economy seems to be holding up in the U.S.,” writes NatAlliance Securities’ Andrew Brenner.

Unfortunately, it might not be that simple. One reason given for Thursday’s rally back after a disappointing ISM services number was the fact that it makes an October rate cut by the Federal Reserve more likely. The jobs report does the opposite, writes Deutsche Bank’s Alan Ruskin. ”This is not the kind of data that makes for a particularly compelling case for a 25bp Oct cut,” he explains. “The Fed will have to dig a bit deeper than they would like to, to justify a cut.”

If they can justify one at all.

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Write to Ben Levisohn at Ben.Levisohn@barrons.com

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