US September Nonfarm Payrolls Preview

Nonfarm Payrolls in the US are expected to appear above “normal” once again. That would affirm that the US employment situation remains “hot”, and that the Fed can focus on getting inflation down.

According to the latest BLS report, there were over 10.1M job openings, but just 6.0M people were looking for a job. The labor market remains extremely tight, but the gap continues to narrow. The implication is that the labor market is heading towards being balanced, though there is still some time to go. The Fed, therefore, has room to keep raising rates, but that room isn’t unlimited.

Crucially, in August, there were 344K jobs created, but the number of open jobs dropped by 1.1M, which means that demand destruction is the larger component of the labor market rebalancing. Translated to non-economic speak, that means that more job openings are being closed because businesses are no longer seeking than because they’ve hired someone.

There were 219,000 initial jobless claims in the week ending October 1, the weekly data published by the US Department of Labor (DOL) showed on Thursday. This print followed the previous week’s print of 190,000 (revised from 193,000) and came in worse than the market expectation of 200,000. Further details of the publication revealed that the advance seasonally adjusted insured unemployment rate was 1% and the 4-week moving average was 206,500, an increase of 250 from the previous week’s revised average.

The number of job openings decreased to 10.1 million on the last business day of August, the US Bureau of Labor Statistics (BLS) reported in its Job Openings and Labor Turnover Summary (JOLTS) on Tuesday. This print came in slightly lower than the market expectation of 10.4 million.

September US NFP is forecast at 250K compared to 344K in August. As usual, the prior month could be revised, affecting the market outlook. Since a “normal” NFP is around 200K, any above figure will likely support further Fed tightening and weighing on the stock market.

Starting with the short-term reaction, real market expectations had already been lower. ADP’s private-sector jobs report showed an increase of 132,000, already lowering expectations for Nonfarm Payrolls. White House spokeswoman Karine Jean-Pierre added to the cooling estimates by saying they foresee a cooldown in the labor market. Moreover, August’s NFP tends to miss expectations, and some were eyeing that figure. 

The US Bureau of Labor Statistics (BLS) will release the September jobs report on Friday, October 7 at 12:30 GMT. As we get closer to the release time, here are the forecasts by the economists and researchers of 4 major banks regarding the upcoming employment data.

SocGen

“We project a 280K gain. The unemployment rate for September is expected to decline to 3.6% from 3.7% in August. The monthly flows are volatile. If there are no returnees, or if there is a net exodus from the labor force rather than re-entrants, the unemployment rate could drop even more than the 3.6% we project. Wages are expected to rise 0.5% MoM in September. We view the shortfall seen in August, when wages rose 0.3%, as noise in the data rather than the beginning of a new trend.”

Citibank

“US September Nonfarm Payrolls – Citi: 265K, prior: 315K; Private Payrolls – Citi: 245K, prior: 308K; Average Hourly Earnings MoM – Citi: 0.4%, prior: 0.3%; Average Hourly Earnings YoY – Citi: 5.1%, prior: 5.2%; Unemployment Rate – Citi: 3.6%, prior: 3.7%. An overall slowing trend in monthly payroll growth should continue in September and as the Fed acts to weigh on activity, slowing job growth into 2023 will likely also reflect falling demand for labor and likely job losses. The change in the unemployment rate will also be one of the most important aspect of the jobs report. We expect the unemployment rate to decline modestly to 3.6% but with risk that it remains at 3.7%.”

Wells Fargo

“We look for another solid 275K increase. Another sizable increase in labor force participation would be a welcome development for Fed officials as they attempt the high wire act of bringing labor supply and demand into a healthy balance.”

Barclays

“We expect 250K in NFP, steady unemployment and participation rates, and average hourly earnings to move up 0.4% MoM (5.0% YoY). A strong report could drive the market to fully price a 75 bps rate hike in November, expectations of which had declined recently, and this would further support the dollar.”