September Non-Farm Payroll: A Delayed but Vital Snapshot
The US Bureau of Labor Statistics is set to release the September Non-Farm Payroll (NFP) data at 9:30 PM Beijing time on Thursday, ending the official employment data blackout caused by the government shutdown. While this data reflects the past, it remains highly relevant.
Consensus forecasts among economists anticipate an addition of 50,000 jobs in both public and private sectors for September, up from the initially reported 22,000 in August. The unemployment rate is expected to hold steady at 4.3%, with year-over-year average hourly earnings growth at 3.7% and month-over-month growth at 0.3%, mirroring August's levels.
Despite the report's September timeframe, it offers investors, economists, and Federal Reserve officials much-needed guidance after relying heavily on private data during the record-long government shutdown.
"I think the September report, plus revisions to the July and August numbers, will show a slightly better picture than the prevailing expectations, but nothing to write home about," says Joseph Brusuelas, chief economist at RSM. "The labor market, like the overall economy, is holding steady."
Challenges for Policymakers and Markets
Given that these data are from September, they offer limited assistance to policymakers navigating a complex landscape and may be largely disregarded by markets. Federal Reserve Chair Jerome Powell recently likened the current situation to "driving in the fog" and cautioned against viewing further rate cuts as a certainty while officials are still seeking direction.
While one month's employment report can help clarify some issues, the outlook remains murky. Brusuelas added, "The economy is struggling through a period of uncertainty. Given how long the shutdown lasted, I don't think we will have a clear picture of the labor market until early February of next year."
However, other data, such as ADP's private sector employment statistics, layoff announcements from employment consulting firm Challenger, Gray & Christmas, and numerous other indicators, provide investors with some clues about the current state of the labor market.
Divergent Views Within the Fed
Indeed, Federal Reserve Governor Christopher Waller, in a speech on Monday, pushed back against the notion that the Fed lacks sufficient data to make decisions.
"Policymakers and forecasters are not 'groping blindly' or 'in the fog,'" Waller said in a speech advocating for a December rate cut. "While having more data is always good, we as economists are good at using the available data to make forecasts."
Based on currently available data, Goldman Sachs expects a higher-than-consensus addition of 80,000 jobs in September but anticipates a decrease of 50,000 jobs in October, primarily due to the expiration of the deferred resignation program launched by the Elon Musk-led Government Efficiency Department.
"While we expect the BLS not to publish an unemployment rate for October, we estimate it would likely have risen, reflecting upward pressure from furlough-related absences and broader indicators of labor market softening," wrote Goldman Sachs economists Ronnie Walker and Jessica Rindels in a report.
Ed Al-Hussainy, portfolio manager at Threadneedle Investments, believes the unemployment rate warrants more attention as it can serve as a gauge of labor market health, given that the government's crackdown on immigration is reducing the labor supply.
He explained, "If the (September) unemployment rate holds steady, that's further evidence that the Fed doesn't need to stimulate the economy any further. If the unemployment rate ticks up, even by just 0.1%, that's a strong indication that the economy needs more help."
Future Expectations and Rate Cut Probabilities
In addition to the overall September data, Thursday's report will also include revisions to the July and August data. Both Brusuelas and Goldman Sachs economists expect these numbers to be higher than previously reported.
After the Bureau of Labor Statistics finalized its latest batch of employment data on Wednesday, Wall Street investors believe the Fed is more likely to hold interest rates steady at its December meeting. CME's FedWatch Tool data indicates that two-thirds of investors believe the Fed will not cut interest rates in December.
The Bureau of Labor Statistics will not publish the October employment report separately but will merge it with the November report. The release date for the November report has been postponed from December 5 to December 16. October's unemployment rate data will not be published because the Bureau of Labor Statistics was unable to collect household data. Similarly, the September and October data for the Job Openings and Labor Turnover Survey will be combined and published on December 9.
"This (the postponement of updated Non-Farm Payroll data until after the Fed's December policy meeting) reduces the likelihood of a December rate cut," wrote Michael Gapen and his team of economists at Morgan Stanley in a report. "Labor market weakness is the key argument for a December rate cut."
Leah Traub, portfolio manager at Lord Abbett & Co., also stated, "We already knew that October's unemployment rate data would not be published, but the November data won't be published until after the Fed meeting, which should disappoint the market. Given the divisions within the Federal Open Market Committee (FOMC), this reduces the likelihood of a rate cut."
The minutes of the FOMC's October meeting, released on Wednesday, further confirmed this trend, with the minutes revealing that "many" Fed officials said that keeping interest rates steady for the remainder of 2025 might be appropriate.
Recently, several Fed officials have urged caution about cutting interest rates while inflation remains above the central bank's 2% target. Policymakers and traders will lack new evidence of labor market weakness, triggering another sell-off in federal funds futures.
Swap contracts linked to the Fed's target interest rate indicate that the probability of a rate cut in December is around 30%. Before Wednesday, the probability of a rate cut was around 50%. For the first meeting next January, the market expects a cut of approximately 21 basis points.
Asset Implications
The September Non-Farm Payroll data, to be released on Thursday, will be the latest official labor market data before the Fed's December meeting and will garner significant market attention. If the data is weaker than expected, hopes for a rate cut in December may be rekindled. Conversely, data that exceeds expectations will reinforce the Fed's rationale for pausing rate cuts.
"If the data is weak, the market reaction will be greater than if the data is in line with expectations or slightly above expectations, because the market already expects a temporary pause in rate cuts at the December meeting," said Dan Carter, portfolio manager at Fort Washington Investment Advisors. "The Fed won't have much first-tier economic data before the meeting convenes."
With expectations for a rate cut in December having fallen sharply, the attractiveness of non-yielding assets like gold will diminish, as Treasury bonds can offer relatively stable returns in a high-interest rate environment.
At the same time, the recent strong rebound in the dollar is putting pressure on commodity prices, such as precious metals, which are priced in dollars. The dollar is not only supported by the Fed's hawkish interest rate outlook but also benefits from growing concerns about excessive expansion of fiscal spending in other developed countries (especially Japan). The surge in long-term Japanese government bond yields has put pressure on the yen, prompting more funds to flow into the dollar.
However, gold prices have also rebounded, as Nvidia's strong results eased concerns about an artificial intelligence bubble, driving up technology stock prices. Recently, gold prices have been closely correlated with stock markets (especially artificial intelligence and technology stocks). Nicky Shiels, a strategist at MKS PAMP SA, says that this strong positive correlation can be attributed to investors using hard assets like gold to hedge the risks of their artificial intelligence investments. "If investors think the risks of artificial intelligence trading have decreased, they will also reduce the size of the hedge."
Many Wall Street institutions remain confident in the long-term upward trend of gold.
TD Securities' analysis of the "13F" filings for the largest physically-backed gold ETFs held by institutions shows that the range of institutions buying gold is widening. Daniel Ghali, the company's senior commodity strategist, said in a research report that the data also indicates that general participation in the gold bull market is expanding. In addition, central bank purchases are likely to continue as a long-term trend.
Goldman Sachs also said in a report on Monday that gold prices still have considerable upside potential, thanks to demand from central banks. The bank said that central banks may buy large amounts of gold in November, a trend that has been ongoing for years to diversify reserves and hedge against geopolitical and financial risks. Goldman Sachs reiterated its expectation that gold prices will reach $4,900 per ounce by the end of 2026, and prices may rise further if private investors continue to diversify their portfolios.
Various concerns surrounding the Fed's policy path and AI trading have also led to recent sell-offs in the stock market. Nvidia's better-than-expected results after market close on Wednesday provided some temporary relief for the US stock market.
David Russell, head of global market strategy at TradeStation, said: "There is a lot of uncertainty in the market due to missing data and the unclear effects of tariffs. Fed policymakers are making decisions blindly and have not reached a consensus."
Andrew Tyler, head of global market intelligence at JPMorgan Chase, believes that the recent sell-offs in the stock market represent a "technical shakeout" that may have ended. "Given that there are no fundamental changes in the fundamentals, and our investment assumptions do not rely on the Fed's easing policy, we are buyers on the dip," Tyler wrote in a note to clients on Wednesday.
Bob Diamond, former CEO of Barclays and current CEO of investment firm Atlas Merchant Capital, also described the recent turmoil in global markets as a "healthy correction" as investors struggle to assess the various aspects of technological changes.
Ulrike Hoffmann-Burchardi of UBS Global Wealth Management said: "Continued investment in artificial intelligence, the strong financial strength of today's leading technology companies, and the growing potential and evidence of return on investment all make us confident in the next round of gains in global stock markets in the coming months."
Regarding the bond market, traders expect increased volatility in this market before the release of the employment report. The ICE BofA MOVE index, which measures expected volatility in the bond market, has rebounded to a two-month high after hitting a four-year low during the government shutdown.
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