We expect headline job gains rose to 60k in Sep from 22k in August. We had seen soft employment data in the last 3-4 months but that trend might change in Sep for seasonal factors. Seasonal trends in hiring (and thus seasonal adjustment related to hiring patterns) have had an outsized influence on monthly job figures. This has resulted in weaker seasonally adjusted data in the spring and summer when hiring usually pick up. That annual pattern changes in September. Hiring is typically much weaker in the fall and winter, which last year resulted in stronger seasonally adjusted job growth. Jobless claims data through the first few weeks of September suggest this trend is repeating this year. The unemployment rate should remain at 4.3% but there is an upside risk if the LFPR shifts slightly up which we believe is a possibility in Sep NFP. Government employment was likely a drag in September. There is likely to be a large decline in government employment in the October report next month. We expect the Oct NFP to be in -ve territory to the tune of -25k. Federal employees who accepted deferred resignation offers are counted as still employed at least through the end of September. There are conflicting reports of the cumulative impact, ranging from 75k-150k. We expect average hourly earnings (AHE) growth cooled to 0.2% m-o-m. There is also some upside risk to the average workweek, which can put downward pressure on AHE growth, since earnings are calculated by dividing aggregate pay by hours worked. There now appears to be a material risk of a government shutdown next week, although last-minute compromises are not uncommon. Government data releases would likely be disrupted, including the employment report (Oct 3), and the CPI (Oct 15). Our expectation is that these releases will be delayed until after the government re-opens, similar to what happened in October 2013. In the event that BLS employment cannot be published because of a government shutdown the ADP employment data could be a useful guide to the state of the labor market. Although the absolute error on monthly changes can be sizable, the first prints of ADP over the last six months have cumulatively come within 20k of the revised BLS data. Summary: Fundamentals still suggest more downside risk to employment than upside. Over the coming months, we expect labor demand to weaken enough that residual seasonality is not sufficient to keep employment data from softening further. Hence, we continue to expect 25 bps cut each in the next 4 meetings till Mar’26 taking the Fed policy rate to the neutral level of 3%.
