Jobs Preview: The importance of the September data
AInvestThursday, Oct 3, 2024 3:42 pm ET
2min read
BA --

The September Nonfarm Payrolls (NFP) report, scheduled for release tomorrow morning, is expected to play a pivotal role in shaping market sentiment and Federal Reserve policy. Economists anticipate that the U.S. economy will have added 148,000 jobs in September, while average hourly earnings are projected to rise by 0.3% month-over-month. The unemployment rate is expected to tick up slightly to 4.2%. This report will be closely watched, particularly in light of the labor market cooling seen in the previous two months, and its impact on the Fed's monetary policy decisions moving forward.

Over the past two months, job growth has significantly underperformed expectations. In August, the U.S. economy added only 114,000 jobs, missing the forecast of 176,000 by a wide margin. This was followed by a similarly disappointing September report, with 142,000 jobs added versus a consensus forecast of 164,000. These consecutive misses sparked concerns that the labor market was slowing more rapidly than anticipated, leading to declines in equity markets as investors grew uncertain about the economic outlook and the possibility of more aggressive Fed rate cuts.

In both August and September, markets reacted negatively to the jobs reports. The sharp miss in August led to a decline in the S&P 500, as investors feared that weaker job growth signaled a slowdown in the broader economy. Bond yields fell as investors sought safe havens, anticipating a potential economic downturn. Similarly, after the September report, equities continued to drop, with bond yields experiencing modest declines. These market reactions reflected the increasing uncertainty about the Fed's next move, with investors contemplating the possibility of further rate cuts to combat economic weakness.

Looking ahead to tomorrow's report, there is heightened anticipation as the Federal Reserve continues to navigate its policy in response to the evolving economic landscape. While the headline job growth is expected to be modest, with estimates ranging from 130,000 to 200,000 new jobs, wage inflation and the unemployment rate will be key indicators of underlying labor market strength. A stronger-than-expected report could lead to a reassessment of Fed rate cut expectations, while a significant miss could heighten fears of a more severe economic slowdown.

The October jobs report, set for release next month, could be heavily distorted by recent events, such as the Boeing machinists’ strike and the ongoing strikes at U.S. ports along the East and Gulf Coasts. In addition, the effects of Hurricane Helene could lead to temporary disruptions in employment figures. These events may result in lower job numbers, which would not necessarily reflect broader labor market trends but could still impact market sentiment and Fed policy decisions.

Given the potential distortions in the upcoming October report, tomorrow's release takes on even greater importance. As it may be the last "clean" reading of the labor market for several months, investors will scrutinize the data closely for signs of weakening or resilience. If the report meets or exceeds expectations, it could ease concerns about an economic slowdown and lead to more stability in the markets. On the other hand, another miss could reinforce fears of a decelerating economy and drive further volatility.

In conclusion, the September jobs report is poised to be a major market-moving event. Investors will be looking for any indications of labor market softening or inflationary pressures, as these will likely influence the Fed's rate decisions in the coming months. With the potential for heightened volatility, particularly in equities and bonds, traders should be prepared for swift market reactions depending on how the report unfolds. This release will set the tone for market sentiment and policy expectations heading into the final quarter of 2024.

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