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The U.S. economy exceeded expectations by adding 254,000 jobs in September, leading to a positive employment outlook as the unemployment rate decreased to 4.1%, according to the Labor Department’s report released on Friday. This surge in nonfarm payrolls, up from 159,000 in August, surpassed the Dow Jones consensus forecast of 150,000 jobs.

The employment report, which includes upward revisions from previous months, alleviates concerns about the labor market’s health and suggests that the Federal Reserve may adopt a more gradual approach to interest rate reductions. August’s figures were revised upwards by 17,000, while July saw a substantial increase of 55,000 jobs, bringing the total monthly job growth to 144,000.

In addition to robust job creation, wages also saw an uptick, with average hourly earnings rising 0.4% from the previous month and 4% from a year ago. The average workweek slightly decreased to 34.2 hours. The positive report was met with optimism by financial markets, as stock market futures rose and Treasury yields increased.

Key sectors driving job growth in September included restaurants and bars, which added 69,000 positions, health care (45,000), government (31,000), social assistance (27,000), and construction (25,000). The broader measure of unemployment, which considers discouraged workers and part-time employees seeking full-time work, dropped to 7.7%. The labor force participation rate remained steady at 62.7%.

The survey of household employment revealed a gain of 430,000 jobs, with the employment-to-population ratio rising to 60.2%. Full-time positions saw a significant increase of 414,000, while part-time jobs decreased by 95,000.

Market expectations for consecutive interest rate cuts by the Federal Reserve in November and December strengthened following the report, reflecting uncertainty over the Central bank‘s response to the labor market’s performance. Fed Chair Jerome Powell highlighted the solid jobs market but acknowledged a cooling trend over the past year. While signs of increased layoffs have been limited, hiring rates have slowed, according to business surveys.

Powell and other Fed officials have hinted at further interest rate cuts following last month’s reduction, with quarter-point increments likely through the end of the year. The debate surrounding the pace of these rate cuts persists within the market, as economic conditions evolve.

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