U.S. Labor Market Update

By Lucia Mutikani

WASHINGTON (Reuters) – The U.S. economy likely maintained a moderate pace of job growth in September, with the unemployment rate expected to hold steady at 4.2%. This stability reduces the Federal Reserve’s need for significant interest rate cuts in its remaining meetings this year.

The labor market may face brief turbulence due to Hurricane Helene impacting the Southeast and a strike of tens of thousands of machinists at Boeing. Additionally, a work stoppage involving 45,000 dockworkers on the East Coast and Gulf Coast recently concluded.

If the Boeing strike continues, it could negatively affect the October nonfarm payrolls data, which is due just before the November 5 presidential election. Despite these challenges, the Labor Department’s employment report is expected to show a consistent labor market losing momentum gradually.

Wage growth remains solid, supporting economic expansion. The Federal Open Market Committee initiated a rate-cutting cycle last month with a half-percentage-point reduction, with Chairman Jerome Powell acknowledging concerns about the labor market’s health.

Dan North, a senior economist, predicts continued slowdown rather than collapse in the labor market. Economists estimate that nonfarm payrolls likely increased by 140,000 jobs in September, down from 142,000 in August. This is significantly below the past year’s monthly average gain of 202,000.

Payroll growth has primarily been in less cyclical sectors like healthcare and government, but overall hiring has slowed as it nears pre-pandemic norms. Elizabeth Crofoot of Lightcast notes that although the labor market appears stable, underlying trends may be concerning.

Recent data revisions showed a stronger economy than previously thought, leading Powell to downplay hopes for a rapid rate cut. After hiking rates extensively in 2022 and 2023, markets now indicate a 65% chance of a quarter-percentage-point rate cut in the November meeting.

The slowdown in the labor market is tied to sluggish hiring amid increased labor supply due to immigration. Low layoffs support economic stability through consumer spending. Average hourly earnings are expected to rise by 0.3%, with wages increasing by 3.8% year-on-year.

Despite a rise in the unemployment rate from 3.4% in April 2023, estimates suggest it may not change further due to seasonal shifts, particularly among younger job seekers. Economists believe the economy needs to generate 200,000 jobs monthly to keep up with growth in the working-age population, although this could decline to 150,000 or lower with slowed immigration. Goldman Sachs expresses uncertainty about labor demand’s ability to absorb new market entrants and halt the ongoing increase in the unemployment rate since mid-2023.