Nonfarm payrolls growth expected to edge down in September jobs report

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On Friday, investors will be searching the Department of Labor's September's Summary of the Employment Situation for clues on how much the economy is slowing. Nonfarm payrolls are expected to slip to 250K in September from 315K in August. Economists expect the unemployment rate to hold at 3.7%.

"Employment and jobless claims data suggest the job market remains firm," Mark Hamrick, senior economic analyst at Bankrate. "Even with some companies announcing layoffs or plans to cut jobs, it appears that many individuals have been able to transition to new employment opportunities in quick order."

Federal Reserve officials will be watching the monthly jobs report to see how much its tighter monetary policy is affecting the labor market. Fed Chair Jerome Powell has called the labor market "unsustainably" strong. Easing in the labor market will also help relieve some inflationary pressure.

Even if the number comes in weaker than expected, the central bank isn't likely to change its policy based on one month's data. It will be two more months before the Department of Labor finalizes September's figures. On Wednesday, Atlanta Fed President Raphael Bostic warned that reversing policy too early can make matters worse and lead to entrenched elevated inflation expectations.

And while there have been some announcements of layoffs, especially in tech, it hasn't been significant. On Tuesday, San Francisco Fed President, whose district includes Silicon Valley, said the bank is hearing about a "smattering" of layoffs. Rather, the SF Fed's business contacts said they're slowing hiring.

The Challenger Job Cuts Report showed a 68% Y/Y jump in job cuts in September to almost 30,000, with the most coming from retail (9,273) and technology (4,212). But for the year-to date figures, job cuts of 209,495 declined 21% from the same period a year ago, touching the lowest level for the January-September period since Challenger started tracking monthly job cuts in 1993.

Higher unemployment ahead: From Giacomo Santangelo's viewpoint as an economist at job-search site Monster, unemployment is bound to go up. "It’s impossible for the Fed to raise rates as aggressively as it has without seeing a rather substantial increase in unemployment," he said in an interview with Seeking Alpha.

With inflation rising so much, companies are shying away from hiring full-time employees, he said. At the same time, demand for part-time jobs is increasing. He's also seeing some workers taking multiple full-time jobs to deal with higher prices.

Economists surveyed by Bankrate expect the job market will weaken over the next year, slipping to fewer than 100K jobs added a month with the unemployment rate rising to 4.4%, consistent with expectations of Federal Open Market Committee members.

One sign of easing in the job market came in Tuesday's job openings and labor turnover report — or JOLTs data. The number of job openings fell to 10.05M in August, the lowest since June 2021, from 11.17M in July. "That decline should come as an encouraging sign for the Federal Reserve, which has been targeting excess labor demand with aggressive interest rate hikes as it tries to tame inflation," wrote Tuan Nguyen, an economist with RSM US LLP.

Significant gap: The gap between labor supply and demand still remains significant, Nguyen said, as there were 1.7 jobs available for each unemployed worker in August. That's down from two jobs per unemployed person from March to June of this year.

Average hourly earnings are expected to be little changed. With the consensus for 5.1% Y/Y average hourly earnings growth vs. a 5.2% increase in August. As a point of reference, the average hourly earnings for private nonfarm payroll employees was $32.36 in August.

No soft landing: In the longer-run, unemployment appears bound to rise, "Inflation like this leads to recession," Monster's Santangelo said. "There is no soft landing. Whether that's tomorrow or next month, we should expect unemployment to worsen in the next year."

If the September report comes in hotter than the consensus, expect the stock market to slide, said SA contributor Michael Kramer.