Dow Jones

WASHINGTON - U.S. employers hired more workers in September than at any time in the previous five months, raising wages and reducing the possibility that the Federal Reserve will cut interest rates anytime soon.

Nonfarm payrolls rebounded after two consecutive months of decline, growing 252,000 in September, the Labor Department said Friday. That drove down the unemployment rate to 3.9%, a 30-year low. It also pushed up pay; average hourly wages increased by 3 cents, or 0.2%, to $13.83.

The numbers surprised Wall Street, which had expected payrolls to rise just 230,000 and the unemployment rate to remain at 4.1%. Investors had been growing increasingly sure that the Fed would begin cutting interest rates by February. But Fed policymakers cooled those expectations by warning at their meeting last Tuesday of the continued inflation risk posed by the tight labor market.

The Fed has raised interest rates six times since June 1999 to keep the economy from overheating, lifting its key federal funds rate to a nine-and-a-half-year high. The economy is slowing as a result: Economists expect to learn that it grew only about 3% in the third quarter, down from 5.6% in the second quarter. As a result, investors began to bet on an interest rate cut. By the beginning of last week, they were estimating a 36% chance of a cut by February, according to futures contracts on the funds rate.

The U.S. labor market, however, has not slackened much. A strike by 87,000 Verizon Communications Inc. workers and a wave of layoffs at the Census Bureau depressed overall payroll growth during the summer, but other employers generally continued hiring.

On Thursday, the Federal Reserve, publishing the minutes of the Aug. 22 meeting of its Open Market Committee, drew particular attention to the danger that the tight labor market will eventually trigger inflation.

The Labor Department attributed the rebound in payrolls partly to the return of 75,000 striking workers to their jobs, which was partly offset by 27,000 layoffs at the Census Bureau. When those factors are excluded, nonfarm payrolls grew 204,000 in September.

Total private payrolls grew 288,000, up from a 17,000 increase in August. The growth contributed to an increase in wages, though wage growth slowed - to 0.2%, after a 0.4% increase in August.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.