A great Sept jobs market was something the Fed and Wall Street didn't want

So we got the September jobs report, and the topline numbers seemed to be the right combination of slower growth, but not heading towards recession.

JUST IN: The US economy added 263,000 jobs in September, a mild slowdown from the summer (August saw 315,000 gains).

The unemployment rate fell to 3.5%

Average hourly earnings rose 0.3% in Sept, a slowdown from earlier in the year.

— Heather Long (@byHeatherLong) October 7, 2022

Note that it's 75,400 jobs added in "health care and social assistance."

Health care alone added +60,100 jobs

— Heather Long (@byHeatherLong) October 7, 2022

The Biden jobs recovery continues, where the job losses of the COVID era recovered and then some, both overall and in the key industries of manufacturing and construction.

And naturally Wall Street hated it.

Why? Yahoo's Rick Newman says that it's because the Federal Reserve will translate this data into an economy that is still "overheating", because we're still adding jobs at faster rate than Donald Trump's "greatest economy in history". And the Fed is demanding "fewer jobs, please."

The jobs report for September was solid, but in the current fun-house economy, that’s bad news. Employers created 263,000 new jobs in September, which is slower than the pace of hiring for the prior three months, which averaged 372,000 new jobs. But 263,000 new jobs is still a bigger jump in employment than would be normal in a healthy economy. In 2018 and 2019, for instance, job gains averaged 189,000 per month, which was not too hot and not too cold.

The September numbers are too hot, even with the slowing pace of growth. That’s because of inflation, currently running at 8.3% (over the last 12 months, not the current monthly rate). The Federal Reserve is aggressively raising interest rates in order to slow economic activity. As lending costs rise, consumers and businesses borrow less and spend less. That depresses demand, which is supposed to bring prices down and solve the inflation problem.

The Fed won’t come out and say it, but part of the inflation-fighting plan is to cool the hot labor market and push up the unemployment rate. Fewer workers earning a paycheck is one sure way to bring down aggregate spending. The September job numbers show the Fed’s strategy isn’t working, yet. The unemployment rate actually dropped from 3.7% to 3.5%, which would be great if inflation weren't a problem.

As it is, however, the September numbers make clear that the Fed has a lot more work to do. “Job growth and wage gains cooled, a bit,” Oxford Economics reported on Oct. 7. “However, the drop in the unemployment rate back to a cycle low underscores that the labor market remains extremely tight. The Fed will view the jobs report as a reason to continue its aggressive pace of tightening.”

But the gains in the last 2 quarters have been notably lower than the amount of gains in the first year after Biden's stimulus package was passed in March 2021.

Total job growth, US
Q2 2021 +1.267 million
Q3 2021 +1.630 million
Q4 2021 +1.912 million
Q1 2022 +1.616 million
Q2 2022 +1.047 million
Q3 2022 +1.115 million

And job growth should naturally slow further at 3.5% for the rest of 2022 regardless of what happens. But the Fed doesn't like it when workers have more job options and more money, because then they can demand more things, which allows for companies to keep "inflation" going by passing on cost increases to consumers.

But I'm still not seeing what the problem is here. And I don't understand why the Fed wants to raise borrowing costs sky-high when our inflation issues involve supply-fixing by overseas petro-states and bubbly commodity prices bid up by traders?

Plus, prices were already leveling off in Q3, and inventories have continued to grow in many sectors. So why does the Fed think they need to do much more to crush inflation and take the economy with it?

It feels like a dumb and backwards-looking strategy from a group of people who are supposed to be "the smartest folks in the room." But that's where we need to remember that they're not working with and hanging around everyday people with real jobs and bills to pay.