Friday’s jobs report could be the last normal one for a while

September’s jobs report, due out Friday morning, is expected to show that the US labor market has slowed somewhat but remains on solid footing.

And while status quo isn’t always the most exciting of states, further signs of stability could bode well for the broader economy and the Federal Reserve, which is closely watching for signals that the slowdown in the labor market is progressing into an overall economic downturn.

“The next two employment reports will be critical in shaping the Fed’s November policy decision,” Lydia Boussour, senior economist at EY-Parthenon, wrote Wednesday in a note.

While September’s employment data is expected to stay relatively tame, the same can’t be said for the October jobs report, which is set to be released on November 1, just days before the presidential election.

That month’s data could very well be heavily distorted by three significant disruptions: the devastation from Hurricane Helene; the ongoing Boeing machinists’ strike; and the short-lived, but massive, strike at US ports along the East and Gulf Coasts.

The strikes and hurricane-related effects “are not going to permanently alter the trajectory of the labor market; but September is probably our last clean reading on the labor market for a while,” Ryan Sweet, chief US economist at Oxford Economics, told CNN earlier this week.

Even though the cause would be temporary, the US hasn’t had a negative jobs report since December 2020, when Covid cases had a resurgence.

The labor market has been on a cooling trend for a while now as it settles back into balance following the pandemic and it absorbs the drastic ramp-up in inflation-busting interest rate hikes.

The weaker-than-expected July report (a surprisingly low 114,000 monthly total that was revised lower to 89,000) and a subsequent annual data revision that indicated slower job growth for the year ended in March 2024 exposed pain points and raised red flags that the labor market was maybe not slowing but actually crashing.

The August jobs report, which showed better-than-expected estimated 142,000 payroll gains and a drop in the unemployment rate, went a long way to quell those fears.

September could have the same effect: Economists project that the US added 140,000 jobs in September and that the unemployment rate held steady at 4.2%, according to FactSet estimates.

“The labor market is pretty strong right now,” said Erica Groshen, a former Bureau of Labor Statistics commissioner who is a senior economics adviser at the Cornell University School of Industrial and Labor Relations.

“It’s tailed off a little bit from the dizzying heights a few months ago,” she added. “Unemployment is still very low. Job growth is probably somewhere around a sustainable level.”

Economists have been banging the drum that the underlying fundamentals of the labor market have remained firm. They’ve pointed to high employment-to-population ratios, labor force participation rates and job openings; strong consumer spending, productivity, and corporate balance sheets; and, especially, low levels of layoffs.

New data released Thursday showed that job cut announcements dropped slightly in September. Employers last month announced 72,821 cuts, a decline of 4% from August, according to Challenger, Gray & Christmas. Still, the September announcements are up 53% from a year before.

Claims for unemployment benefits, which are considered a proxy for layoffs, have increased over the past year but remained relatively steady. Last week, first-time claims increased to 225,000 from 219,000, according to Labor Department data released Thursday.

Such an increase was anticipated, partly due to rolling furloughs at Boeing, Pantheon Macroeconomics economists wrote in a note to investors on Wednesday.

“We’re at an inflection point now, where the labor market could stall or tighten,” Andrew Challenger, senior vice president at Challenger, Gray & Christmas, said in a statement. “It will take a few months for the drop in interest rates to impact employer costs, as well as consumer savings accounts. Consumer spending is projected to increase, which may lead to more demand for workers in consumer-facing sectors.”

That “wait-and-see” approach was evident in the latest Job Openings and Labor Turnover Survey report released earlier this week by the BLS.

Although job openings moved higher in August, hiring activity was languid: Outside of the pandemic, the rate of hires to total employment was in the realm of what was seen during and shortly after the Great Recession.

Also, outside of the pandemic era, the quits rate was the lowest since 2015.

It showed that the jobs market is in “stasis,” Wells Fargo economists wrote in a note issued Tuesday.

“In level terms, the US labor market is holding up, but it is still in a fragile position,” the economists wrote. “Beneath the surface, turnover in the labor market (i.e., new hiring and workers quitting their current jobs) has stalled out to levels reminiscent of the early to mid-2010s. The good news is that layoffs and discharges remain historically low.”

However, they added, layoffs and other separations “need to stay low to avoid a marked slowdown in net hiring,” just given the backdrop of weaker demand for new workers.

Further loosening in monetary policy could get things churning again, but the Fed’s recent half-point cut will take some time to work through the system, Noah Yosif, chief economist and head of research at the American Staffing Association, told CNN.

“Just because the Federal Reserve votes to decrease interest rates in September does not mean that employers are going to see lower costs in October,” he said, adding that it could take three to six months to filter through to businesses.

More rate cuts are expected for later this year, but the extent will depend on the health of the labor market, and that outlook could be quite murky due to the strikes and Hurricane Helene.

Fed officials, who are scheduled to make the central bank’s next interest rate decision just days after the October jobs report lands, will do their best to look through the noise and what are likely idiosyncratic factors, Oxford Economics’ Sweet said.

But the longer the disruptions last, the greater the chance of ripple effects throughout the labor market and the economy, said Ejindu Ume, associate professor of economics at Miami University in Ohio.

“We’re already seeing mixed data in terms of weakness and the strength of the labor market, but these new developments could put more risk into the system: more risk of people being laid off, more risk of the unemployment rate continuing to pick up,” Ume said in an interview. “So that makes the Fed’s job even more challenging.”