As Friday’s nonfarm payroll report approaches, the labor market is showing signs of a potential cool-down. While analysts predict a modest increase of 140,000 jobs, slightly down from August’s 142,000, the recent ADP National Employment Report offers mixed signals. The report revealed that the private sector added 143,000 jobs in September, a positive development compared to August’s 99,000. However, this growth was primarily driven by gains in goods-producing industries like construction and manufacturing.
The concerning factor is the slowdown in wage growth. Job-stayers experienced a 4.7% increase, indicating a potential shift in wage pressure that could significantly influence the Federal Reserve’s policy decisions. This combination of slower job creation and tempered wage growth points to a cooling labor market, which could provide the Fed with some leeway to consider additional easing measures.
Markets are currently anticipating another rate cut in November. The CME FedWatch tool indicates traders are assigning a 63.7% probability to a 25-basis-point rate cut in November, while the likelihood of a 50-basis point cut stands at 36.3%. A weaker-than-expected nonfarm payroll report could strengthen the case for the Fed to act more aggressively, especially as inflationary pressures appear to be moderating.
Louis Navellier, chairman of Navellier & Associates, highlights the low expectations for Friday’s payroll report, attributing them to potential disruptions caused by Hurricane Helene. He also expresses concerns about the ongoing manufacturing recession, further emphasizing the challenges faced by manufacturers due to the International Longshoreman Union strike. This strike has effectively shut down three dozen U.S. ports, causing significant disruptions, particularly for auto manufacturers who are increasingly warning about parts shortages.
Looking ahead, Navellier predicts October to be a strong month for the markets, albeit starting slow and gaining momentum as third-quarter earnings announcements begin. He expects the second half of the month to outperform the first, driven by positive momentum from earnings reports. Key sectors such as leisure and hospitality, which added 34,000 jobs in September, and construction, with 26,000 new positions, will be closely watched. Any signs of weakening in these areas could indicate broader economic softness, adding urgency to the Fed’s deliberations on the path forward.
However, a stronger-than-expected payroll report could temper expectations for immediate rate cuts, keeping markets in suspense. As Friday approaches, all eyes remain on the labor market, eager to see whether it can maintain momentum or if the Fed will step in to stimulate further growth.
