If current trends persist, a robust job market might lead to a weaker stock market. Friday’s upcoming nonfarm payrolls report is expected to be a critical moment for Wall Street, which has been apprehensive all week due to unexpectedly strong labor market indicators. The concern is that if the tight labor market remains strong, it could prompt the Federal Reserve to maintain high interest rates, potentially posing a threat to the U.S. economy during a crucial period.
Economists surveyed by Dow Jones anticipate the report for September to reveal a net addition of 170,000 new jobs. If the number exceeds this significantly, it could have a paradoxical effect on the market, where good news could be interpreted as bad news. Quincy Krosby, Chief Global Strategist at LPL Financial, noted that “the market interprets all aspects of the report through the lens of the Fed.” Consequently, the market is hoping for a headline figure that confirms a labor market that has slowed down but remains resilient.
Earlier in the week, the Labor Department reported an unexpected increase in job openings for August, reaching their highest level since spring and reversing a recent trend of decline. This report triggered concerns, leading to a stock market decline and a spike in Treasury yields, which could indicate apprehension about potential Fed rate hikes.
Wall Street’s View:
As of now, the market doesn’t anticipate a Fed move at the end of its next meeting on November 1, with only a 19.6% chance of a rate hike according to fed funds futures prices. However, a strong jobs report could change this outlook, as some on Wall Street are anticipating.
Goldman Sachs forecasts job growth of 200,000, while Citigroup expects even higher at 240,000. ADP’s report for private payrolls in September showed an increase of just 89,000, though it often differs from the Labor Department’s official count.
Weekly jobless claims have been decreasing in recent weeks, indicating a reluctance among employers to lay off workers. The overall sentiment is that employers are not yet actively seeking to reduce their workforce, as evidenced by the relatively low level of initial claims.
Market Observer’s Bird Eyeview:
Market observers will also closely analyze worker wages and the labor force participation rate. The expectation is for a 0.3% increase in average hourly earnings, compared to a 0.1% increase in August. The unemployment rate, influenced by labor force participation, is expected to dip to 3.7%.
Top News October 4, 2023:Friday’s Jobs Report | Labor Market
In summary, the upcoming September jobs report is highly anticipated, and it is expected to show a continued slowdown in job growth in the United States. However, it may not be sufficient to rule out the possibility of a rate hike by the Federal Reserve at its November 1 meeting. The labor market is expected to weaken later in the year due to higher interest rates, tighter lending standards, and reduced consumer spending. Fed Chair Jerome Powell has emphasized the need for some softening in the labor market to achieve the Fed’s inflation and policy goals. Any indication that the tight labor market is persisting could prompt a monetary policy response from the Fed.
