WASHINGTON -- An employment report for September that fit neatly with market expectations points to continuing moderate growth with subdued inflationary pressures, analysts said Friday.

The Labor Department said nonfarm payroll jobs increased by 156,000 last month, rebounding after a revised drop of 41,000 in August as retail and other service-sector businesses stepped up hiring. A separate household survey shows that the civilian unemployment rate was unchanged at 6.7%.

"It's good to see sort of a steady-state report instead of an outlier like last month," said Tom Carpenter, chief economist for ASB Capital Markets. "I think this is a positive number for stocks and bonds."

The September rise in nonfarm jobs was in line with the 149,000 average monthly gain through August, suggesting the kind of slow improvement in labor markets that has gone on all year, Carpenter said. "The report lacked pizzazz, and from that viewpoint the bond market liked it, but I still think that in the third quarter we're going to have growth of 3% or more."

Other economists were a little less optimistic about growth, but they agreed that U.S. output should do better in the second half of the year. "The service sector is continuing to do well in terms of creating jobs," said Paul Boltz, financial economist for T. Rowe Price Associates in Baltimore. He estimated that third-quarter gross domestic product rose 2.75%, which would be more than double the 1.3% rate of the first half of 1993.

According to the Labor Department, jobs in the service sector increased by 164,000 in September and accounted for nearly all the growth in employment. Retail trade employment rebounded by 4 1,000, adding to a string of gains through most of the year, while other gains were recorded in transportation, public utilities, finance, and health.

But analysts noted that some features of the report suggested weakness and were a factor behind Friday's bond market rally. More than 40% of the increase in service jobs came in government, including 54,000 local government jobs that apparently reflected school hirings. Moreover, manufacturing jobs fell by 18,000, bringing losses since February to 260,000, and construction employment showed little change.

The bond market was also cheered by the report's wage and price figures, and by a decline in weekly hours worked to 34.4 from 34.7 in the private sector. Average hourly earnings were unchanged, and average weekly earnings fell $3.76 to $373.58.

"Basically the economic story remains the same. You've got moderate economic growth," said John Silvia, chief economist for Kemper Financial Services, Inc. in Chicago. "You don't have any clear take-off. You still have what we consider low inflation."

But Silvia said expectations of a strong second-half rebound in GDP similar to last year's surge have faded, noting that job growth has slowed in the retail, business service, and medical sectors during the last three months. "You're getting a ratcheting down of expectations."

The employment report reinforced expectations that the Federal Reserve will keep to its neutral policy on interest rates. "The Fed can really just lean back and watch things," said Dana Johnson, head of a market analysis group for First National Bank of Chicago.

Johnson said he was not impressed by the drop in hours worked because the series has declined in the final month of the last seven quarters, suggesting a statistical quirk. He estimated that real GDP rose 2.5% in the third quarter. "It looks like a self-sustaining, relatively well-balanced recovery."

Economists expect GDP to get additional lift in the fourth quarter if automakers stick to their plans to boost production. Merrill Lynch & Co. estimates GDP will rise by more than 4% in the quarter after a gain of 2.2% in the third quarter.

Meanwhile, Labor Department officials said that they were looking into complaints that prices of bond futures traded in Chicago jumped just before the release of the employment report. A department spokesman said officials found no evidence that the "lock-up" rules aimed at preventing financial reporters from breaking the 8:30 a.m., EDT, embargo had been breached. A spokesman for the Chicago Board of Trade said the office of investigations and audits that is responsible for monitoring trading in the pits is also looking into the matter.

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.