Employers added 254,000 jobs in September, blowing away forecasts and reversing a slowdown in hiring that had prompted the Federal Reserve to make a jumbo rate cut at its meeting last month. 

Economists had forecast 140,000 new jobs, according to financial data provider FactSet. 

The unemployment rate inched down to 4.1%, versus 4.2% in the prior month.

The employment report marks the second-to-last reading on the labor market before the Federal Reserve’s November 7 rate decision meeting, when the central bank is expected to once again cut its benchmark rate. The Fed last month made a jumbo cut, its first rate reduction in four years, in the face of weakness in hiring and a cooling economy. 

But September’s surprisingly strong hiring suggests that the U.S. could be headed for a so-called “soft landing,” with the Fed’s prior rate hikes having helped to cool the economy while skirting a recession, experts said. 

“Today’s data hit a grand slam with payrolls coming in strong, positive revisions and unemployment falling,” noted Lindsay Rosner, head of multisector investing within Goldman Sachs Asset Management, in an email. “The economy is heading into the post-season solidly.”

Stocks gained on the blow-out employment data, with both the Dow Jones Industrial Average and the S&P 500 rising 0.4% in early Friday trading. The tech-heavy Nasdaq composite index rose 0.5%.

What does the jobs report mean for a Fed rate cut?

The strong data could give the Fed more flexibility at its November rate cut meeting, giving the central bank the breathing room to issue a smaller rate cut of 0.25 percentage points, versus its 0.5 percentage point cut last month, experts says.

The strong report suggests the Fed would be unlikely to repeat its September jumbo cut when it meets again for two days in November, noted PNC chief economist Gus Faucher, who added that the Fed funds futures market is now pricing in a 91% probability of a 25 basis-point cut on November 7, versus a 47% chance a week ago.

“The Fed can continue recalibrating its policy stance to one that’s less restrictive, and this shows that they don’t really need to be in a rush right now,” said Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management, in an email. “Our base case calls for 25bps cuts in November and December, and a continuation of that gradual pace into 2025.”

It’s possible that Hurricane Helene could disrupt October hiring, however, she added. The October jobs report, scheduled to be released on November 1, is the last monthly employment data the Fed will receive ahead of its November 7 rate decision. It’s also the final jobs report before the presidential election.

Employers had added 159,000 jobs in August and 144,000 in July, according to the Labor Department’s revised figures for the prior two months.

Wages growing faster than inflation

Average hourly wages rose 4% last month on an annual basis, signaling that workers are keeping ahead of inflation, which stood at an annual pace of 2.5% in August. 

Inflation likely dropped to 2.3% last month, according to economists polled by FactSet. The Consumer Price Index report for September will be released on October 10.

“Real purchasing power continues to increase,” noted Jeffrey Roach, chief economist for LPL Financial. That’s “good news for businesses and consumers.”

Even so, many consumers continue to struggle to make ends meet following years of meager wage growth as well as high inflation, experts said. While economists generally rate the state of the economy as solid, consumers don’t see it the same way, with 6 in 10 voters describing the economy as “bad,” according to CBS News polling.

“Are some folks still having a hard time? Absolutely,” noted EPI senior economist Elise Gould in a blog post. “Even when the unemployment rate is low, there are still sidelined workers, and it remains difficult for many families to make ends meet on wages that are still too low.”

Restaurants and other food services businesses added 69,000 jobs last month, while health care companies added 45,000 jobs, the Bureau of Labor Statistics said.