U.S. employment in September is expected to be similar to August. With hiring gradually slowing from earlier in the year and wages rising slightly, the labor market is looking very much like many policymakers expected.

According to the consensus expectations of economists, the number of new non-agricultural jobs in September is expected to decrease slightly from 142,000 in the previous month to 140,000, and the unemployment rate will remain stable at 4.2%. In terms of wages, the year-on-year growth rate of average hourly wages is expected to remain flat at 3.8%, and the month-on-month growth rate is 0.3%, which is slower than the 0.4% in the previous month.

If the data comes in as expected, that would be close to a best-case scenario, allowing the Fed to continue cutting rates without worrying that it could fall behind the curve and risk triggering a recession.

“The job market is slowing and tensions are easing a bit,” said Katie Nixon, chief investment officer at Northern Trust Wealth Management. “The balance of power has shifted in favor of employees, which will certainly take some pressure off wages, which have been a key component of inflation. Our team has been expecting a soft landing for some time, and this is what it looks like.”

Of course, there is always the potential for a big upside or downside surprise in the NFP reading. In addition, monthly revisions can sometimes change dramatically. For example, the Labor Department overcounted hiring by more than 800,000 in the 12 months ending in March 2024, adding uncertainty to job market analysis.

However, Goldman Sachs analysts believe that seasonal distortions may have weighed on the last two employment reports, so August employment growth may be revised upward. Since 2010, August employment growth has been revised upward by an average of 67,000, of which about two-thirds usually occur in the first revision.

The U.S. Bureau of Labor Statistics will release its report at 8:30 p.m. Beijing time on Friday. While there will still be a non-farm payrolls count before next month's election, the October report is expected to be distorted by the impact of a dockworkers' strike and Hurricane Helena, making the September non-farm report the last "clean" employment data before Election Day.

Mixed clues

Labor market indicators have been trending downward over the past few months but are far from falling off a cliff. Manufacturing and services surveys have pointed to a slowdown in hiring, while Federal Reserve Chairman Jerome Powell earlier this week described the labor market as solid but softening.

Aside from a brief downturn during the coronavirus pandemic, the last time monthly hiring was at this summer’s level was in October 2013, when the unemployment rate was 7.2%, according to the Bureau of Labor Statistics. Monthly hiring was at 3.3% in both June and August of this year.

Job openings have also declined, reducing the ratio of open jobs to unemployed people to 1.1:1 from 2:1 a few years ago.

At the same time, labor market turnover has slowed. Excluding the 2020 coronavirus pandemic, the quits rate has not been lower than the current 1.9% since December 2014, and the last time the layoff rate covering the pandemic was lower than the current 3.1% was in December 2012.

Ahead of this week's nonfarm payrolls report, other employment indicators were mixed.

For example, JOLTS job openings surged in August, rising to 8.04 million from a revised 7.71 million in July and above the expected 7.69 million. This is the highest level since May, indicating that the US labor market remains tight. This data will support stronger-than-expected employment data.

On the other hand, however, the employment component of the ISM manufacturing index, which has historically been closely linked to the nonfarm payrolls report, slowed sharply in September. Its reading fell from 46 to 43.9 in September, deep in contraction territory and one of the lowest levels so far in 2020. Initial jobless claims were largely stable, but have fallen slightly in recent weeks, supporting the stability of the unemployment rate.

Will the Fed’s stance waver?

September's nonfarm payrolls will help shape expectations for the Fed's easing policy by the end of the year. Powell hinted this week that if economic data meets expectations, interest rates will be cut by 25 basis points in November and December this year. This is a hawkish view compared to market pricing.

This guidance and the better-than-expected ADP data have money market pricing back toward a 25 basis point rate cut in November, with the probability now pricing in more than 60%.

John Flood, chief trader at Goldman Sachs, said expectations for the non-farm payrolls have climbed to 175,000 after the ADP data beat expectations.

Still, if the data shows a sharp weakening, market expectations for another 50 basis point rate cut from the Fed could be revitalized. Atlanta Fed President Bostic previously said data below 100,000 would be a cause for concern.

David Kelly, chief global strategist at JPMorgan Asset Management, believes that "a strong number won't really change their position. A weak number might induce them to cut interest rates by another 50 basis points." However, Kelly added that the Fed is more likely to believe that the employment situation is "ambiguous" rather than being led by a single data point.

Nora Szentivanyi, an economist at JPMorgan Chase, predicts that the number of non-farm payrolls in the United States will increase by 125,000 in September, indicating that labor demand is still slowing down, suggesting that the Federal Reserve may still cut interest rates by 50 basis points at a time. "If the data is around 100,000, it will increase the possibility of a substantial rate cut."

Rich Privorotsky, another Goldman Sachs analyst, said the impact of the non-farm payrolls data should be straightforward, because good news is good news and bad news is bad news. "A reading below 100,000 will raise concerns that the Fed is behind the curve again, and the best second-degree scenario is slightly better than expected but not very strong, that is, below 200,000."

Is gold expected to return to its all-time high?

Some traders took advantage of the recent rebound in the dollar to take profits and adjust their positions before the U.S. non-farm data showdown. The dollar index fell back in early trading on Friday after hitting a six-week high on Thursday.

Reduced bets on aggressive easing by the Federal Reserve weighed on prices of non-interest bearing gold, but rising geopolitical tensions between Iran and Israel kept the downside capped.

The next direction of gold prices will depend on the upcoming non-farm payrolls data. Unexpectedly upward data on new job growth and wage inflation may support bets that the Fed will cut interest rates by 25 basis points in November, adding additional momentum to the recovery of the US dollar, thereby pressuring gold prices. In contrast, if the results are disappointing, expectations that the Fed will cut interest rates sharply at its next meeting may return, thus hitting the US dollar across the board. In this case, gold prices may rise back to the all-time high of $2,686.

Fxstreet analysts pointed out that the short-term technical outlook for gold prices remains largely unchanged, and buyers will be motivated as long as the 14-day relative strength index (RSI) remains in the bullish zone. The leading indicator is currently trading around 68.

Gold prices need to close above the static resistance around $2,670 to gain new upside. The next resistance is at the all-time high of $2,686. If it rises further, bulls will target the round number mark of $2,700 and then the rising trend line resistance, currently at $2,752.

On the other hand, it will be crucial to hold the September 24 low of $2,623 before moving down to the $2,600 threshold, which coincides with the 21-day simple moving average.

The article is forwarded from: Jinshi Data