September surprise? U.S. jobs report holds key to Fed rate cuts.

By Jeffry Bartash

Forecast: 150,000 jobs, 4.2% unemployment rate

The U.S. jobs report has overtaken inflation as the chief worry of the Federal Reserve as it plots how fast to cut interest rates.

Hiring has slowed and the unemployment rate has risen, but there's no sign the labor market is collapsing. Here's what to watch in the September jobs report on Friday morning.

Headline jobs

The U.S. likely added a decent 150,000 jobs in September, Wall Street DJIA economists say. In August, the preliminary estimate was 142,000.

Such an increase would fall well short of the 250,000-plus monthly gain in 2023, but it would be roughly the number of new jobs needed to keep the unemployment rate from rising.

The Fed would view a 150,000 gain as a sort of Goldilocks number. Not too hot and not too cold.

Unemployment rate

The jobless rate has climbed to 4.2% from a cycle low of 3.4% a year a half ago and raised worries at the Fed and among the broader public.

That's the bad news. The good news? The unemployment rate has risen because more people are looking for jobs, not because of rising layoffs. The rate of layoffs is near a record low.

Some 1.3 million people have entered the labor force since January, but only 265,000 have found jobs, according to the government's household survey.

"While employers aren't hiring, they also aren't firing," said Thomas Barkin, president of the Richmond Federal Reserve.

September surprise

The government hasn't been as accurate since the pandemic when estimating employment growth each month. September could be another one of those months.

How come? Private-sector employment has fallen in every single September since 1997 - save for the pandemic year of 2020 - before the government applies its seasonal adjustments.

As a result, the season adjustments will play a large role in determining employment growth in September. Some economists predict the adjustments could exaggerate job creation and produce a number closer to 200,000.

Keep in mind that government employment typically surges in September as schools reopen.

Wage growth

The Fed doesn't believe the cost of labor is a significant contributor to U.S. inflation. Wages are forecast to rise a mild 0.2% in September and leave the yearly increase at 3.8%.

Wages are still rising somewhat faster compared to 2019, but all the evidence suggests they are likely to cool off even further.

Fed reaction

Employment gains of 150,000 or above in September are likely to keep the Fed on course for a smaller quarter-point cut in a key short-term U.S. interest rate in November.

But if there's a big dropoff in hiring, say 100,000 or less, and another increase in unemployment, it could tilt the Fed closer to another half-point cut like the one in September.

-Jeffry Bartash

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

10-04-24 0757ET

Copyright (c) 2024 Dow Jones & Company, Inc.