Despite a stronger-than-anticipated increase in US jobs growth for September, the unemployment rate also climbed as more workers entered the labour market seeking employment.
With the Federal Reserve recently adopting a more hawkish stance and a lack of key data releases ahead of the December 10 FOMC meeting, market consensus is forming around a delay in the next policy move until early 2026, ING Group said in a report.
The US jobs report for September, which was released later than its originally planned 3 October date, exceeded market expectations.
Jobs data exceed expectations
Non-farm payrolls grew by 119,000 additions, significantly firmer than the 51,000 consensus prediction.
“We imagined the risks were always skewed to the upside, given the Federal Reserve had a good idea of its contents at the October FOMC when it cut rates by 25bp but adopted a more hawkish posture on future moves,” James Knightley, chief international economist at ING Group, said in the report.
This was likely one of the triggers.
Despite a generally positive outlook, the report included a notable 33,000 downward revision for the previous two months.
The employment gains were concentrated in the usual three sectors: leisure and hospitality, government, and private education and healthcare services, which together accounted for nearly all the new jobs.
Unemployment rate jumps
It is also important to note that the federal government workers who agreed to departure packages will not be reflected until the combined October and November report, which is scheduled for release on December 16, Knightley said.
Meanwhile, the unemployment rate saw an increase from 4.3% to 4.4%.
This rise is attributed to a separate household survey, which revealed that while the labor force expanded by 470,000, only 251,000 individuals secured employment, resulting in an increase of 219,000 in unemployment.
Concurrently, month-on-month wage growth remained modest, climbing by only 0.2%.
Compared to the establishment survey, which produces the non-farm payrolls figure, this survey is typically more volatile.
Rate cut bets
Knightley said:
Given that we won’t receive any more official jobs data ahead of the 10 December FOMC meeting, and we aren’t confident on the inflation release schedule, it is understandable that the market is only pricing a 35% chance of a 25bp cut.
The market appears to be giving more weight to the rising unemployment rate, according to Knightley.
While business surveys, such as the ADP report and ISM indicators, do suggest a weaker employment environment, a more significant deterioration will be required to prompt a Fed rate action in the next three weeks.
According to the ING Group, the US Fed is likely to have its hands full next year.
“Workers remain very downbeat on the jobs market, and the relationship shows that over the past 50 years, workers see and feel changes before they show up in the official data,” Knightley added.
That doesn’t bode well for upcoming jobs reports.
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