September Jobs Report: A Calm Before The Storm?

A labor market report scheduled for release this Friday will show that the U.S. economy continued to add jobs at a robust pace in September. But that may be the last good jobs report before the coming economic storm, a recession that could result in job losses.

That's according to Dan North, a senior economist at Allianz Trade. He expects a headline of 300,000 jobs, very close to the consensus estimate of 290,000 jobs, as reported by Trading Economics.

The optimistic expectations about the September jobs report are based on several factors. One is the continued decline in the jobless claims, which dropped below 200,000 in the previous week. The other is the elevated job openings, which stood at 10.1 million in August 2022.

Despite the high job opening levels, the U.S. economy has not gained any new jobs since the pandemic, and many jobs are either part-time or temporary.

"While the job market as a whole remains tight and employers are competing for staff, inflationary pressure is steadily prompting more Americans to look to flexible and temporary work as a way to boost their earnings," Stacey Lane, U.S. general manager at Indeed Flex, a job site, told International Business Times in an email.

North sees the end to job growth in the near future. "So, although we may continue to see some strong job gains for a few months to come, the party will be over soon," he told IBT in an email.

U.S. economic growth, the ultimate driver of job growth, has already dipped into negative territory, with a full-blown recession underway. That's thanks to the Fed's steep interest rate hikes, which are beginning to take their toll on cyclical sectors.

But there are a couple more things to watch out for in Friday's report. One is wage growth, a good indicator of future inflation, as producers pass the higher labor cost on to consumers with price hikes. Trading Economics expects hourly earnings to grow at 5.2% in September, in line with the August number, meaning wage pressures remain elevated.

In recent months, wages have been rising, but they still lag behind the inflation rate, meaning the job market may not be as strong as it looks.

The other thing is the unemployment rate, which has reached multi-year low levels in recent months. This raises concerns about a wage-price spiral, which could add fuel to already high inflation.

North expects things to turn around sharply on this front, with unemployment rising from 3.5% to 3.7%, as more unemployed people enter the workforce.

In addition, he sees further evidence of slowing in the job market in the coming months. Like a decline in both openings and hirings and a narrowing gap between the two, as indicated in recent JOLTs reports. For instance, in August, the number of job openings in the U.S. dropped to 10.1 million, the lowest since June 2021 and well below a record level of 11.9 million last March.

"And most ominously, major corporations from Ford to Credit Suisse, to J.P. Morgan to Tencent are laying off workers — they see a storm coming," North added.