The Labor Department will publish perhaps the most important monthly employment report of the year Friday as investors remain gripped by movements in the bond market amid concerns that a resilient job market will stoke inflation pressures and trigger more Federal Reserve rate hikes.
The Bureau of Labor Statistics' September employment report is likely to show that employers added 170,000 new jobs to the economy last month, down from the 187,000 pace recorded last month and the slowed pace since December of 2020.
That anticipated labor market cooling, however, has defied recent moves in the bond market, where benchmark 10-year Treasury bond yields have surged more than 55 basis points over the past five weeks as markets adjust to the 'higher-for-longer' interest rate signals from the Fed, based in part on labor market resilience.
The headline unemployment rate is forecast to fall modestly, to 3.7% from 3.8%, while wages are likely to rise 0.3% from August while holding at an annualized rate of 4.3%.
"The bigger picture is that private job growth has dropped markedly from late 2021, when payroll growth ran at about 700K during the Great Rehiring, and it appears still to be slowing, albeit gradually," said Ian Shepherdson of Pantheon Macroeconomics. "In any event, the Fed, however, cares more about the unemployment rate than the monthly payroll numbers, because the former captures the net effect of movements in labor demand and supply, and that’s what matters for future wage growth."
The CME Group's FedWatch, which tracks real-time forecasts for Fed rate hikes, suggests a 78.9% chance that rates will stay unchanged at the next policy meeting on November 1, with a 35% chance of either a quarter point or half point increase in November.
A softer-than-expected jobs report today could ease some of those concerns, and dovetail with recent comments from San Francisco Fed President Mary Daly that higher bond yields are negating the need for another rate hike as the economy, though solid, shows signs of slowing over the coming months.
Benchmark 10-year notes were last pegged at 4.752% in overnight trading, down from the 2007 high of 4.832% earlier this week, with 2-year notes changing hands at 5.039%
Job market data this week has been mixed, with ADP's monthly National Employment Report showing a decline in private sector hiring and muted wage gains for job leavers, while the BLS's weekly estimate of Americans filings new applications for jobless benefits holding near the lowest levels in 8 months.
Other reports, including Challenger Gray & Christmas' monthly tally of overall job cuts, showed September layoffs fell 37% from August to 75,151, taking the third quarter total to around 146,300.
“Employers are grappling with inflation, rate increases, labor issues and consumer demand as we enter Q4,” said Andrew Challenger, labor expert and Senior Vice President of Challenger, Gray & Christmas, Inc.
Labor demand, however, remained robust over the month of August, according to the BLS's monthly Job Openings and Labor Turnover Survey, better known as JOLTS, which showed unfilled positions surging to a much higher-than-expected total of 9.6 million.
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