The upcoming September jobs report is anticipated to provide further evidence of a labor market that has cooled in 2024.
However, the slowdown is unlikely to be severe enough to prompt a significant interest rate cut from the Federal Reserve in November.
Scheduled for release by the Bureau of Labor Statistics at 8:30 a.m. ET on Friday, the report is expected to show a modest rise in nonfarm payrolls, with an estimated increase of 150,000 jobs for the month.
The unemployment rate is predicted to hold steady at 4.2%, according to Bloomberg’s consensus forecasts.
Steady, but slower hiring trends
Despite the deceleration in job creation, the US labor market continues to add enough jobs to support consumer spending, which is crucial for sustaining the broader economy.
Over recent months, however, hiring has lost some of its previous vigor as businesses become more cautious about expanding their workforce.
For September, economists expect employers to have added around 140,000 jobs—closely mirroring August’s 142,000 increase—according to forecasts from FactSet.
“We’ll see modest employment gains—not spectacular—but enough to keep the economy progressing,” said Brian Bethune, an economist at Boston College, as reported by AP.
Resilient economy defies recession fears
The US economy has shown remarkable resilience, outperforming predictions that the Federal Reserve’s aggressive interest rate hikes would lead to a recession.
After raising rates 11 times between 2022 and 2023 to combat inflation, the Fed has so far avoided a downturn.
Instead, the economy has managed to grow despite higher borrowing costs for both businesses and consumers.
In an effort to support the job market, the Federal Reserve began cutting rates last month.
This strategic move aligns with an increasing likelihood of a “soft landing”—a scenario in which the Fed controls inflation without triggering a recession.
According to Bethune, this soft landing “is already secure.”
Economic concerns in the lead-up to election day
With the US presidential election approaching on November 5, economic issues remain a significant concern for voters.
While the job market’s resilience is clear, many Americans remain dissatisfied with high prices, which are still 19% higher than in February 2021, the starting point of the recent inflation surge.
Across the economy, key indicators remain robust.
The US economy grew at a 3% annual rate between April and June, driven by consumer spending and business investment.
Looking ahead, the Federal Reserve Bank of Atlanta’s forecasting tool suggests a slightly slower, yet still strong, 2.5% growth rate for the July-September quarter.
On Thursday, the Institute for Supply Management (ISM) reported that US service sector activity grew for the third consecutive month in September, with an unexpected acceleration.
Given that the service sector represents more than 70% of US jobs, this is a critical indicator of economic health.
Job security and spending stay strong
Despite the cooling labor market, Americans are enjoying unprecedented job security.
Layoffs remain near record lows, and initial claims for unemployment benefits have stayed historically low.
Employers, cautious about expanding their workforce, are also reluctant to let go of current employees.
This dynamic is likely a response to the staffing shortages many companies faced during the economy’s rapid post-pandemic recovery.
From June to August, employers added an average of just 116,000 jobs per month, including a particularly weak 89,000 in July—the lowest three-month average since mid-2020.
This stands in stark contrast to the 2021 average of 604,000 jobs per month and the 2022 average of 377,000.
Additionally, job openings have steadily decreased, dropping to 8 million in August from a peak of 12.2 million in March 2022.
As a result, fewer workers feel confident enough to switch jobs, with the number of people voluntarily quitting their roles hitting its lowest level since August 2020.
Impact on wages and inflation
Job-hopping has also become less rewarding. Workers who changed jobs in September saw a 6.6% increase in pay compared to the previous year, a premium of just 1.9 percentage points over those who stayed in their positions.
This marks a sharp decline from the peak job-hopping premium of 8.8 percentage points in April 2022, according to data from ADP Research.
The job market’s cooling trend can be attributed to the Federal Reserve’s extended period of high interest rates.
However, there are signs that relief could be on the way.
Last month, the Fed implemented a significant half-percentage-point rate cut, its largest since the pandemic-induced recession in 2020.
Encouraged by declining inflation, the central bank has shifted focus toward stabilizing the job market.
Inflation was up 2.5% in August compared to a year earlier, close to the Fed’s 2% target and a sharp decline from its 9.1% peak in June 2022.
What to expect from the Fed and the job market
According to AP, Friday’s jobs report could bring further good news. KPMG’s chief economist, Diane Swonk, anticipates that average hourly wages rose by 0.2% in September, down from 0.4% in August.
That would amount to a year-over-year wage gain of 3.7%, near the 3.5% level many economists consider consistent with the Fed’s inflation target.
A moderation in wage growth could reduce the pressure on businesses to raise prices, further alleviating inflationary concerns.
As the Fed continues to adjust its monetary policy, it has signaled plans to cut its key rate twice more this year, with four additional cuts projected for 2025.
The prospect of lower borrowing costs could encourage businesses to resume hiring at a faster pace.
Bethune said:
There’s light at the end of this long monetary tightening tunnel.
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