Strong September Jobs Report

The strong September jobs report caught many by surprise, putting the brakes on bets for another jumbo Federal Reserve rate cut. However, Citi believes this strength was an outlier as labor demand remains a worry.

Analysts’ Skepticism

Citi analysts stated in a Monday note, “Details of September data leave us skeptical that this will be the case,” expecting a “reversion to weaker dynamics at some point in the next few months.”

September Data Overview

The September report showed:
– 254,000 payroll jobs added
– Unemployment rate dipping to 4.05%

Despite these numbers, analysts argue it may not reflect a resilient labor market. The reported strength could be more of a result of low labor market churn, influenced by seasonal adjustments, rather than genuine demand for workers that may correct in the coming months.

Supply-Side Concerns

On the supply side, the strong household survey was largely driven by an unusually large increase in government employment, which analysts do not expect to be repeated. Without this surge, the unemployment rate could have risen to 4.3%, indicating potential fragility in the labor market.

Sector Analysis

The 78,000 job gains in the leisure and hospitality sector, representing nearly a third of total new positions, emerged when hiring rates in that sector have cooled to April 2020 levels, raising sustainability concerns.

Future Outlook

If incoming labor market data continues to reflect the strength of the September report, it would indicate that the unemployment rate has stabilized at a low level, suggesting a soft landing for the economy. However, Citi believes this is unlikely, based on trends across various datasets indicating that the very strong September jobs report looks like an outlier.