NEW YORK (Reuters) - U.S. job growth slowed sharply in September, likely as Hurricane Florence depressed restaurant and retail payrolls, but the unemployment rate fell to near a 49-year low of 3.7 percent, pointing to a further tightening in labor market conditions.

Non farm payrolls increased by 134,000 jobs last month, the fewest in a year. Economists polled by Reuters had forecast payrolls increasing by 185,000 jobs in September.

Average hourly earnings increased 0.3 percent, in line with consensus.

COMMENTS:

GUY LEBAS, CHIEF FIXED INCOME STRATEGIST, JANNEY MONTGOMERY SCOTT, PHILADELPHIA

“Jobs data for September were on the firm side of expectations and aren’t doing much to reverse the selling pressures in the interest rate markets. We’ll face a thin session Friday afternoon ahead of Monday’s Columbus Day market closure, and that may provide an excuse for fast money traders to push the selloff further on low volume, but that’s a short term maneuver.”

MARK KEPNER, TRADER, THEMIS TRADING, CHATHAM, NEW JERSEY

“Overall, it was, despite the headline number being lower than expected, when you factor in the revision still strong nonetheless over the last couple of months. That’s maybe why you are not seeing a rally in the bonds, as far as ‘ok this is a really light number and we should be buying bonds here.’ Its showing strength still in the labor market.”

PHIL ORLANDO, CHIEF EQUITY STRATEGIST AT FEDERATED INVESTORS IN NEW YORK:

“The numbers were fine. On the surface the numbers look like they were a disaster.

“You have to focus on two things. No. 1, the impact of Florence during the survey week and the second is the significant revision of 87,000 jobs for July and August. You back the 87,000 into the 134,000 print, that gets you to 221,000. The Street is a 185,000. We were at 225,000, so this number is in line of what we were expecting.

“On balance this number was fine, if you can get past the headline miss, which I think was related to Florence, all the other data points were terrific.”

DEAN POPPLEWELL, CHIEF CURRENCY STRATEGIST, OANDA, TORONTO

“Again a very strong number, despite it being a 12 month low. Hurricane Florence obviously had a bigger impact than the market considered. The unemployment rate hit a 49 year low, again informing us that it is a tight labor market and some employers are probably having problems actually filling vacancies.”

DON ELLENBERGER, HEAD OF MULTI-SECTOR STRATEGIES, FEDERATED INVESTORS, PITTSUBURGH

“The headline number was a miss, which may stem from weather-related effects. You also have a big upward revision. This continues the trend of strong payrolls numbers. Really based on most measures, the labor market is very strong right now. We have had back-to-back months of 0.3 percent increase in wage growth. That’s a gradual upward creep in wages. The unemployment rate dropped to 3.7 percent from 3.9 percent. It’s a solid 3.7 percent.”

PRIYA MISRA, HEAD OF GLOBAL RATES STRATEGY, TD SECURITIES

“The report was solid even though the headline did miss, the unemployment rate fell for the right reasons, the wages number was strong. What was odd was the rate market reaction to this. The entire selloff this week has not been fundamental in nature. There’s a technical component to it, some big asset allocation that seems to be going on, not driven by the fact the Fed is hiking faster or that the economy is overheating.

“It’s hard to tell who is driving the selling. I would not have expected a bear steepener reaction on the report.

“It seems a lot like the price reaction earlier this week, as it is being driven by Treasuries, not swaps, it’s met with a steeper curve, and it’s real-rate driven.”

JOSEPH LAVORGNA, CHIEF ECONOMIST, AMERICAS, NATIXIS, NEW YORK

“I’m a little surprised that the bond market has reacted the way it has because my sense is that expectations of a much stronger number were built in. Now, net of revision numbers were good, if not a little bit better, but my sense is the market was pricing for a number closer to 300 than what we got net of revisions.

“So a little surprised at this point to the Treasury reaction. I still see very little evidence of real significant wage pressure. We had the earnings up, they were up 2.8 percent, which is a little bit less than where they’d been running with the revision, and that’s in the face of 3.7 percent unemployment rate.

“I’m using a bit of an old term, but to me it’s Goldilocks right now. You have very good GDP growth, somewhere perhaps 4 percent, maybe better, but a good solid number, and the economy is performing extraordinarily well, at least relative to recent history. It’s not the boom of the late ‘90s, but it’s doing pretty well.”

MICHAEL ARONE, CHIEF INVESTMENT STRATEGIST AT STATE STREET GLOBAL ADVISORS IN BOSTON

“This is kind of a blame it on the weather jobs report, a lot of folks are chalking up the miss on the top line as a result of Hurricane Florence and some of the weather that occurred during the month. If you look at the underlying revisions were quite strong and the trend continues to be pretty good. The futures initially rallied as it was kind of viewed as a goldilocks, but it is interesting yields kind of looked at it and said no this is still going to be a solid report, a strong report and 10-year yields continued to increase and now futures are off. At first blush, folks are saying this is a miss and now looking under the surface it is showing up as still a pretty solid report that is likely to keep interest rates continuing to move a bit higher.

TOM SIMONS, MONEY MARKET ECONOMIST, JEFFERIES, NEW YORK:

“Overall, this is a very good report. You completely dismiss the weak September payrolls number and look at the gigantic revisions in the August number. We’ll probably see this number get revised next month too. The weaker-than-expected number was due to entirely to the hurricane. We saw the same thing play out last September with Hurricane Harvey. The household survey tells a more compelling story on the labor market -- the big jump in household employment, the drop in household unemployment.”

RUSSELL PRICE, SENIOR ECONOMIST, AMBERGRIS FINANCIAL SERVICES INC, TROY, MICHIGAN

“This is a market friendly type of report because it did show many of the hurricane influences that were expected.

Wage growth “was in line with expectations and it did decline a little bit from the August print. However, the reason it declined on a year-over-year basis was because Hurricane Harvey last year bumped up that September rate last year, and that’s the affect that hurricanes usually have because they reduce non-farm payrolls and they boost average hourly earnings because the first people that are cut are the temporary workers that experience the lowest pay.

“Wage inflation is creeping higher, but it has not accelerated as the market was fearing. There’s no question the job market in the United States is possibly at its best in a generation. There’s no question or debate about that. The jobs report has become a inflation report.”

MATT LUZZETTI, SENIOR ECONOMIST AT DEUTSCHE BANK IN NEW YORK

“There was a miss in the headline payroll figure. But you do have an upward revision to the prior month’s increase and there is evidence of some downward effect from the hurricane. The overall picture is that the labor market remains solid and robust. You have the unemployment rate down to levels last seen in the late 1960s to early 1970s. Wage growth remains consistent with the Fed’s expectations at about 3 percent. Barring any shocks to the economy, we expect them to raise rates in December.”

MARKET REACTION:

STOCKS: Stock futures turned positive but then lost gains and were slightly lower. BONDS: The 10-year U.S. Treasury note US10YT=RJR yield dipped but then regained and was last at 3.2119.

FOREX: The dollar index .DOXY dipped, regained, then dipped again, and was last around flat.