Soft Landing or Recession... This Week's US Employment Report Release

Ministry of Labor to Release 'September Employment Report' on 4th
Nonfarm Payrolls Increase by 146,000...Unemployment Rate Expected at 4.2%
Powell and Other Fed Officials Deliver Consecutive Public Remarks

The most closely watched indicator on Wall Street this week is the September employment report. The U.S. Federal Reserve (Fed) took a preemptive step this month by implementing a 'big cut' (a 0.5 percentage point interest rate cut) amid concerns about a cooling labor market. With mixed outlooks on a soft landing versus recession for the U.S. economy, investors are expected to gauge the future labor market and economic conditions, as well as the potential scale of further rate cuts, through the employment data to be released this week.

According to the U.S. Department of Labor on the 29th (local time), the September employment report will be released on October 4.

Based on Bloomberg estimates, nonfarm payrolls are expected to have increased by 146,000 in September, up 4,000 from August's 142,000. The three-month average monthly job growth rate is projected to have hit its lowest level since mid-2019. The unemployment rate for September is estimated to have remained steady at 4.2%, the same as the previous month. It is anticipated that the report will signal that while U.S. employment remains solid, it is gradually easing.

Prior to the employment report, the Department of Labor will release the August Job Openings and Labor Turnover Survey (JOLTs) on October 1, and the private labor market research firm ADP will publish its September employment report on October 2. ADP's data is expected to show an increase of 124,000 private sector jobs in September, up from 99,000 in August. On October 3, weekly initial jobless claims will also be released.

The market is likely to use these employment indicators to assess the current labor market and economic conditions. In particular, if September's nonfarm payrolls fall short of expectations or the unemployment rate comes in higher than estimated, concerns about a recession could intensify. As inflation continues to slow toward the 2% target, the Fed has shifted its policy focus from inflation to employment stability. Some Fed officials have left open the possibility of additional big cuts depending on incoming employment data.

Wall Street is placing greater weight on the possibility of a big cut at the Federal Open Market Committee (FOMC) meeting in November. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds futures market currently prices in a 53.3% chance of a 0.5 percentage point rate cut by the Fed in November, while the probability of a 0.25 percentage point cut stands at 46.7%.

Amid conflicting views on a soft landing versus recession for the U.S. economy, some on Wall Street expect the unemployment rate to rise to the mid-4% range by the end of the year. Bloomberg Economics projects that the unemployment rate, which rose from the 3% range in the first half of the year to the 4% range in the second half, will reach 4.5% by year-end.

Anna Wong, an economist at Bloomberg Economics, noted, "The September employment report will reflect temporary seasonal effects, showing solid job growth," adding, "The report could overstate the strength of the labor market."

Also this week, the Institute for Supply Management (ISM) will release its September Manufacturing Purchasing Managers' Index (PMI), which is expected to register 47.6, indicating a continued contraction phase.

Several Fed officials are also scheduled to speak publicly. These include Fed Chair Jerome Powell on the 30th, Fed Governor Lisa Cook, Boston Fed President Susan Collins, Richmond Fed President Thomas Barkin, and Atlanta Fed President Raphael Bostic.