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UPDATE: September US jobs data boosts odds of October Fed rate cut

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UPDATE: September US jobs data boosts odds of October Fed rate cut

A cooling U.S. labor market could push the Federal Reserve to further cut interest rates at its October Federal Open Market Committee meeting.

Data from the Bureau of Labor Statistics shows nonfarm payroll employment in the U.S. grew by 136,000 in September, missing the Econoday consensus forecast of 145,000 additional jobs. Job gains in August were revised up to 168,000 from 130,000 while employment figures for July were revised up to 166,000 from 159,000.

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Despite those upward revisions, other disappointing indicators released this month show the U.S. economy is slowing. The ISM manufacturing purchasing managers' index, or PMI, fell to a reading of 47.8% in September, its lowest reading since June 2009, according to the latest reading released Oct. 1. The ADP National Employment Report, published before the nonfarm payroll numbers on Oct. 2, showed private-sector employers added 135,000 jobs in September, compared to the Econoday consensus estimate of 152,000 jobs.

The slowdown in hiring is likely to encourage the FOMC to continue easing monetary policy conditions, according to Sarah House, senior economist at Wells Fargo Securities.

"Another rate cut before year-end looks increasingly likely, with the odds rapidly rising that it will come as soon as the FOMC's next meeting on October 30," House said in an Oct. 4 research note.

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But the factors that are hurting the global economy, including weakening manufacturing, trade tensions and slowing growth, cannot be solved by the Fed alone, according to Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research at Charles Schwab.

"[The Fed] can only do so much," Jones said in an interview. "One of the concerns I have is that they can cut rates, but it isn't the cost of capital or the availability of capital that's hurting the economy."

Markets are still bullish on the idea of a rate cut at month's end. The CME Group's FedWatch Tool indicates the probability of a 25 basis-point-rate cut in the Federal Reserve's Oct. 30 meeting fell to 76.4% following the release of the report, from 88.7% a day ago when disappointing U.S. services data fueled expectations of further easing.

Perceptions of the economy by Fed presidents were mixed before the jobs numbers were published. New York Fed President John Williams said earlier this week that the U.S. economy is in a "favorable place" with a much more mixed outlook. Meanwhile, Richmond Fed President Thomas Barkin said he would be monitoring incoming data to assess the health of the economy.

Average hourly earnings rose 2.9% on a yearly basis, trailing market expectations of 3.2% annual growth. The unemployment rate fell to a 50-year low of 3.5% while the labor force participation rate held at 63.2%. Yields on 10-year Treasurys were little changed at 1.54% at about 10 a.m. ET. The dollar spot index, which tracks the U.S. currency's performance against a basket of developed market peers traded 0.1% higher.