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The US job market is poised to show signs of slowing down in September, providing further evidence that the economy is cooling and the Federal Reserve will refrain from raising interest rates again this year.
Economists surveyed by Bloomberg predict that the latest data will reveal the addition of 170,000 new jobs in September, a decline from the 187,000 added in August.
This report holds significance for the Fed as it assesses whether its efforts to contain inflation are effective, and whether interest rates, which are already at a 22-year high, need to be raised further. The Fed will convene at the end of the month for their next meeting.
Investors will also scrutinize the job figures for indications on future monetary policy. Concerns over the extension of higher rates triggered a recent sell-off in stocks and bonds. The S&P 500 share gauge, a benchmark for Wall Street, closed at its lowest point for 2023, while long-dated Treasury yields reached levels not seen since 2007.
“We are still creating more jobs than the economy needs, for a central bank that is worried about the labor market being too strong,” said Ajay Rajadhyaksha, head of rates at Barclays. “You need a really weak number, I think, for bonds to hold their ground even here.”
The Fed decided to maintain the interest rates at 5.25-5.5% during their meeting on September 20. However, most officials anticipate one more increase in 2023 and a slower rate of cuts over the next two years.
The Bureau of Labor Statistics will release the latest job figures at 8.30am Eastern time on Friday.
Although the headline non-farm payrolls number is projected to exhibit a slowdown, the consensus forecasts indicate a slight decline in the unemployment rate from 3.8% in August to 3.7% for September.
Average hourly wages are expected to have grown by 0.3% on a monthly basis, up from 0.2% in August. Economists anticipate an annual increase of 4.3%, in line with the previous period.
Fed chair Jay Powell has stated that the central bank will approach future interest rate decisions with caution. Several officials have emphasized that the central bank can afford to be patient after multiple interest rate hikes in the past 18 months.
Mary Daly of the San Francisco Fed stated on Thursday that the central bank does not need to rush any decisions, given that monetary policy is restrictive and financial conditions are tight.
According to futures markets on Thursday, there is speculation that the Fed will not raise rates again this year, with borrowing costs expected to settle at 4.6% by the end of 2024, implying at least three rate cuts.
“I think this is a very important report,” said David Kelly, chief global strategist at JPMorgan, ahead of Friday’s release. “Because you’ve got this spike up in interest rates, the chances of a further rise in interest rates, or a breaking of the bond market fever, are quite high.”
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