Home Markets Strong September Jobs Report Reduces Recession Fears

Strong September Jobs Report Reduces Recession Fears

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The September jobs report was stronger than expected and is likely to assuage recession risks and fears, driving up hopes for soft landing or no landing economic scenarios. This report is likely to reduce the chances that the Federal Reserve will cut interest rates by 0.5% on November 7, but the recent trend of slowing payrolls is still supportive of a 0.25% rate cut. An uncertain presidential election outcome could still push the Fed to cut rates by 0.5%.

Strong September Jobs Report

The Employment Situation report, known to economists and analysts as the jobs report, was strong for September. It showed a drop in the unemployment rate to 4.1%, strong net payroll gains of 254,000, and strong upward revisions to payrolls by 72,000 for the previous two months. This was a much stronger report than forecasts by economists and analysts, and it reduces the perceived downside risks to the U.S. labor market and economy.

While the jobs report supports the claim that the U.S. labor market is relatively solid, other recent data also reinforce this notion. After all, initial and continuing jobless claims are very low. Continuing claims are at 1.826 million, which is only around 1.1% of the labor force. Initial jobless claims are also very low, at just 225,000.

Strong Job Openings and Labor Turnover Survey data showed that there were more than 8 million open jobs in August 2024. While that figure is roughly 4.2 million fewer open jobs than the historic high in March 2022 of 12.2 million, 8 million open jobs is still around 1 million open positions greater than before the COVID pandemic. With a difference of more than 6 million open jobs versus people collecting unemployment, it is difficult to expect very large net payroll losses across multiple months anytime soon.

Fed Implications Of The September Jobs Report

The Fed has a dual mandate to support full employment and keep inflation rates low and stable. The September jobs report, August JOLTS data, and recent weekly jobless claims reflect full employment in the U.S. labor market. However, consumer prices are not yet low and stable — or at least not yet at the Fed’s 2% inflation target. The combination of above-target inflation and a solid labor market could incentivize the Fed to cut interest rates by only 0.25% rather than 0.5% in its November 7 policy decision.

Of course, we don’t yet have September inflation data, and there is also a U.S. presidential election to contend with before the next Fed meeting.

The September Consumer Price Index and Personal Consumption Expenditures inflation reports will be released later this month, and they are critical for the Fed’s next decision. Year-on-year inflation rates are likely to have made more progress toward 2% in September, and Prestige Economics is forecasting year-on-year September total CPI to be 2.4%, with core CPI at 3.1%. However, it may be the November election outcome — or uncertainty about that outcome by November 7 — that could push the Fed to cut rates by 0.5%

Market Implications Of The September Jobs Report

A strong September employment report with payrolls well above August levels and a drop in the unemployment rate to 4.1% is a signal that the Fed can take its time with interest rate cuts, which is likely to support the greenback and bond yields. Additionally, this solid report could still have positive impacts on equities, oil prices, and industrial metals prices because it assuages concerns about recession.

What do you think about today’s jobs report?

Let me know in the comments below.

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