The upcoming jobs report on Friday might represent the final regular employment data for some time.
Although the current situation isn't always thrilling, it might indicate stability for the broader economy and the Federal Reserve, who are closely observing signs of a labor market slowdown potentially turning into a full-blown economic downturn.
In her recent note, Lydia Boussour, a senior economist at EY-Parthenon, mentioned that the upcoming employment reports will significantly influence the Fed's November monetary policy decision. While September's job data is expected to remain subdued, October's employment report, to be released on November 1, might be disrupted by three major occurrences: the damage caused by Hurricane Helene, the ongoing Boeing machinists' strike, and the brief, but intense, strike at US East and Gulf Coast ports.
Ryan Sweet, Oxford Economics' chief US economist, noted that although these disruptions won't permanently alter the labor market's trajectory, September will likely be our final chance to observe a clear picture of the labor market for some time.
Despite the temporary nature of these disruptions, the US hasn't recorded a negative jobs report since December 2020, when Covid cases surged again.
Analysis of the upcoming report
The labor market has been exhibiting a cooling trend as it adjusts to the post-pandemic period and the significant surge in interest rate hikes aimed at curbing inflation.
The weaker-than-expected July report (a surprising 114,000 monthly increase, which was revised downward to 89,000) and subsequent annual data revision suggesting slower job growth throughout 2024 highlighted pain points and raised concerns that the labor market might not be slowing but actually collapsing.
However, the August jobs report, which revealed better-than-expected payroll gains of 142,000 and a decline in the unemployment rate, significantly alleviated these concerns.
September might also have a similar impact: Economists are projecting a US job increase of 140,000 in September and an unchanged unemployment rate of 4.2%, according to FactSet estimates.
“The labor market is quite robust at present,” said Erica Groshen, a former Bureau of Labor Statistics commissioner and a senior economics advisor at the Cornell University School of Industrial and Labor Relations.
“It has dipped slightly from the astonishing heights seen a few months ago,” she added. “Unemployment remains remarkably low. Job growth is probably near a sustainable level.”
Job market: Stable, but fragile
Despite this stability, economists have emphasized the labor market's robust underlying fundamentals, including high employment-to-population ratios, labor force participation rates, and job openings; strong consumer spending, productivity, and corporate balance sheets; and exceptionally low layoff rates.
New data released on Thursday showed that job cuts were slightly decreased in September. Companies announced 72,821 job cuts last month, a decline of 4% from August, according to Challenger, Gray & Christmas. However, September's job cuts are up 53% compared to the same period last year.
Claims for unemployment benefits, often considered a proxy for layoffs, have increased over the past year but have remained relatively steady. Last week, first-time claims increased to 225,000 from 219,000, according to Labor Department data released on Thursday.
This increase was expected due to temporary furloughs at Boeing, as noted by Pantheon Macroeconomics economists in a note to investors on Wednesday.
“We're now at a critical juncture in the labor market,” said Andrew Challenger, senior vice president at Challenger, Gray & Christmas. “It could stall or improve. It will take a few months for the reduction in interest rates to affect employer costs and consumers' savings accounts. Consumer spending is projected to increase, which may lead to increased demand for workers in consumer-facing industries.”
This cautious attitude was evident in the latest Job Openings and Labor Turnover Survey report, issued earlier this week by the BLS.
Although job openings increased in August, hiring activity was sluggish: Outside of the pandemic, the rate of hires to total employment was akin to what was observed during and shortly after the Great Recession.
Additionally, outside of the pandemic era, the quits rate was the lowest since 2015.
It appeared that the jobs market was in a state of stasis, according to Wells Fargo economists, who stated in a note issued on Tuesday.
“The US labor market is presently maintaining stability, but it remains in a fragile position,” the economists wrote. “Beneath the surface, labor market churn (i.e., new hiring and workers quitting their current jobs) has stagnated to levels reminiscent of the early to mid-2010s. The good news is that layoffs and dismissals remain historically low.”
However, they added, layoffs and other separations must remain low to prevent a significant slowdown in net hiring, given the current low demand for new workers.
The cloudiness intensifies
Further easing in monetary policy could potentially rekindle activity, but the Fed's recent half-point reduction will take some time to travel through the system, as noted by Noah Yosif, chief economist and head of research at the American Staffing Association.
“Just because the Federal Reserve votes to reduce interest rates in September does not imply that employers will see lower expenses in October,” he explained, adding that it could take three to six months to disseminate through businesses.
Further drops in interest rates are on the horizon for this year, yet the magnitude hinges on the condition of the job market, and this situation could prove hazy thanks to strikes and Hurricane Helene.
Federal bank representatives, set to formulate the central bank's subsequent interest rate strategy a few days following the October employment update, will strive to cut through the clamor and presumably unique elements, mentioned Oxford Economics' Sweet.
However, the longer these disruptions persist, the bigger the likelihood of repercussions spreading across the labor market and the economy, stated Miami University in Ohio's associate economics professor, Ejindu Ume.
"We're currently witnessing contrasting data indicators, ranging from weakness to the labor market's resilience. These new incidents might inject additional risk into the system: a higher risk of job losses, a higher risk of the unemployment rate escalating," Ume explained during an interview. "Consequently, the Fed's mission becomes even more complex."
The Federal Reserve is keeping a close eye on the labor market, as improvements in it could signal stability for the broader economy and their monetary policy decisions. Businesses in the US are anticipating a potential disruption in October's employment report due to Hurricane Helene, the Boeing machinists' strike, and a brief port strike.
Given the current fragile state of the labor market, any signs of a Labor Market Slowdown turning into a full-blown economic downturn would be closely scrutinized by economists and businesses alike, affecting their economic forecasts and business strategies.
