Payrolls to Rise By 130K, Wage Growth to Ease

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Traders are looking to the monthly nonfarm payrolls due later this afternoon.

The release will no doubt shape the decision of monetary policymakers.

According to the economists polled, the monthly payrolls for September is forecast to rise 140k in September.

This comes after a disappointing 130k result in August. Payrolls have been disappointing over the past few months.

US Nonfarm Payrolls, August 2019
US Nonfarm Payrolls, August 2019

But this shouldn’t come as a surprise. Despite the headline decrease, the US labor markets remain one of the key pillars of the economy. In July, payrolls added just 159k during the month.

Economists are looking for a 200k print in order to be convinced that the labor market remains robust, which hasn’t been the case in the past couple of weeks.

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The US unemployment rate is, however, expected to remain steady at 3.7%. This marks an unchanged print as the unemployment rate sits near a multi-decade low. In the past, the unemployment rate has shifted around.

However, the trends in the unemployment rate show a steady decline. After spiking to 4.0% in January, the US unemployment rate has been steadily declining over the months.

For the past three months, the unemployment rate has been steady at 3.7%.

Wage growth is another component that will be closely watched.

The pace of wage growth has been somewhat sluggish, rising at an average pace of 0.3% in the past couple of months.

The forecasts for September indicate that wage growth will rise 0.3% on a month over month basis. This follows a 0.4% increase in August.

The payroll report for August was consistent with the view that the US economy is slowing. Although the declines do not suggest that a recession is around the order.

Can the Fed’s Cuts Help Boost the Labor Market?

The Federal Reserve lowered interest rates twice this year. First in July and later in September. The Fed cut rates by a total of 50 basis points this year. However, since the July through August period, payrolls have not rebounded.

We expect that it will take at least a few more monthly payrolls before we see whether the rate cuts have any impact. Although not directly impacting the labor markets, lower rates mean that firms get access to cheaper credit.

The next big Fed meeting is due in December. Meaning that policymakers will be closely watching the labor market’s indicators.

A steady decline in the upcoming months will no doubt spur officials to cut rates again. But given the fact that the Fed has maintained a neutral tone so far, investors aren’t too sure if the central bank is shifting to an easing bias.

In July, Fed Chair Powell reminded the markets that the rate cut was not the start of an easing bias but only an adjustment.

This, the payrolls data for September will have some importance. Given the fact that it marks the end of the third quarter, the numbers will be closely watched.

According to various other indicators, the forward-looking GDP trackers are already assigning a sub 2.0% GDP growth in the third quarter. This remains consistent with the slower pace of economic expansion.

There are many headwinds to growth globally. Manufacturing has been steadily declining and the trade war between the US and China isn’t conducive for growth either.

Thus, a lot will depend on just the domestic, but also the global factors.

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