Labor market likely softened as Fed hikes take effect

Job growth likely slowed in September series of oversized interest rate hikes has permeated the U.S. economy, but a weaker nonfarm payroll gain is unlikely to deter policymakers from aggressive monetary action to tackle inflation that remains at its highest in decades.

The Ministry of Labor is preparing to publish its latest monthly jobs report at 8:30 a.m. ET Friday. Here are Wall Street’s expectations for the report, according to data from Bloomberg:

  • Non-agricultural payroll: +260,000 expected vs +315,000 in August

  • Unemployment rate: 3.7% expected vs. 3.7% in August

  • Average hourly earnings, month after month: +0.3% expected against +0.3% in August

  • Average hourly earnings, year over year: +5.0% expected vs +5.2% in August

If economists’ estimates come true, the projected payroll gain would mark the smallest monthly increase since December 2020. Any dip in jobs data in September would be a welcome sign for Fed officials trying to tamp down an extraordinarily tight labor market that put upward pressure on wages and contributed to soaring prices.

Be that as it may, members of the Federal Reserve have always affirmed this restrictive policy will be necessary for an extended period until price stability is restored, regardless of the moderations in the monthly data. The Consumer Price Index (CPI) in August rose at an annual rate of 8.3%, well above the Fed’s inflation target of 2%.

Minneapolis Federal Reserve Chairman Neel Kashkari said Thursday that he and his central bank colleagues still have work to do to bring inflation down and are “very far” from halting on rising inflation. interest rates, although some employment data this week showed it. signs of a labor market slowdown.

Labor Department data on Thursday reflected an increase in the number of Americans filing for first-time unemployment insurance. Initial jobless claims rose sharply to 219,000 for the week ended October 1 after slipping to a five-month low of 193,000.

“Thursday’s weekly jobless claims aren’t expected to mean much for Friday’s monthly jobs with the survey week already past, but there are growing anecdotal signs that jobs aren’t as plentiful as they were,” FWDBONDS chief economist Christopher Rupkey wrote in a note. “Central bankers’ concern will not yet shift from inflation to the economy, but the signs are there and the danger of overdoing it is also there.”

A Challenger report showed US employers cut 30,000 jobs last month, up 68% from last year and 46% from the previous month. Elsewhere, the Labor Department’s Job Vacancies and Labor Turnover Survey (JOLTS) earlier this week showed vacancies fell by 1.1million to 10.1million the last working day of August.

“As investors continue to search for clues that an elusive Fed pivot is near, there has been an undeniable increase in one particular kind of perverse behavior: encouraging weakness,” wrote senior strategist Anthony Woodside. active in fixed income at LGIM America, in a Note. “Indeed, market participants bought into the idea that softer economic impressions might be evidence enough to win leniency from hawkish policymakers.”

A construction worker drinks water, during a heat wave in Boston, Massachusetts, U.S. July 21, 2022. REUTERS/Allison Diner

That said, it is expected that the data has not yet softened enough. Even if September’s estimated gain of 260,000 jobs materialized, it would be another slowdown from last month’s print of 250,000, but still significantly above the average of 150,000 to 200,000 that was typical before the pandemic.

Moreover, employment reports have continued to surprise on the upside in recent months. The August print came in at 315,000, higher than the consensus estimate of around 300,000. And in a shock jobs report in July, the US economy added 528,000 jobs, more than double the respective forecast of 250,000 at the time.

Bank of America analysts said in a recent note that they expect strong payroll growth to continue.

“Indicators of labor market activity that feed into our payroll projections have remained hot since the August report,” wrote BofA’s Robert F. Ohmes and Molly Baum. “Labour market dynamics are proving difficult to slow down.

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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