In September, US employment growth is projected to show an improvement compared to the previous month, with a forecast of 165,000 jobs added, up from 142,000 in August. However, a weaker-than-expected nonfarm payrolls report could prompt the Federal Reserve to lower interest rates by an additional 50 basis points during their meeting in November, according to insights from Oxford Economics.
The anticipated job growth of 150,000 underscores the market's expectations, as communicated in a note sent out by the economic advisory firm. The Bureau of Labor Statistics is set to release the crucial nonfarm payrolls report for September this Friday, making this month's results particularly significant. Nancy Vanden Houten, lead US economist at Oxford Economics, emphasized that this upcoming jobs report holds particular weight for the Federal Reserve.
She noted, "If results come in significantly weaker than expected, that could add weight to arguments for another (50-basis-points) rate cut at the Fed's November meeting." Additionally, the firm is anticipating the unemployment rate to increase by 0.1 percentage points, reaching 4.3% in September. This potential rise could trigger the Sahm rule, an economic indicator that predicts recessions based on changes in the unemployment rate.
However, it is important to note that the firm believes this indicator may be sending a 'misleading recessionary' signal, as the increase in the unemployment rate is primarily attributed to labor supply growth rather than a surge in permanent layoffs. The ongoing strike by Boeing workers, which began in September, is not expected to impact the payroll data for last month significantly.
However, if the strike continues for an additional two weeks, it could negatively affect job growth in October, as noted by Vanden Houten. Furthermore, the strike occurring among dockworkers at ports on the East and Gulf coasts, which commenced this week, could also exert pressure on job gains if it persists through the middle of this month. Stifel Economics, in a separate client note released on Wednesday, highlighted a growing concern regarding potential weaknesses in the labor market.
They stated, "A weaker-than-expected read in Friday's report will no doubt boost expectations for a more sizable Fed response come November." Conversely, further signs of a robust or steady labor market, coupled with consistently high prices, will underscore the necessity for a more measured and patient approach to rate cuts in the future. In related news, Automatic Data Processing (ADP) reported on Wednesday that employment growth in the private sector accelerated in September, while wage growth showed signs of cooling.
This indicates a complex economic environment where job creation may be present, but wage pressures are beginning to ease, adding another layer to the Fed's decision-making process ahead..