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US OUTLOOK/OPINION: Citi See U/E Rate Seen Rounding To 4.3% With Risk Of 4.4%

US OUTLOOK/OPINION
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  • Citi are clearly below consensus as they eye nonfarm payrolls growth of just 70k in September (cons. 150k) whilst they see the unemployment rate increasing to 4.3% and are “not far off from rounding up to 4.4%.”
  • Job growth has slowed broadly recently but “if anything, we have been surprised that job growth has not slowed more in sectors such as construction and leisure/hospitality and see growing risks of a sharper pullback in these industries.”
  • “While 70k job growth is not much softer than recent readings after revisions, the further weakening trend with the unemployment rate close to the Fed’s year-end forecast should solidify market pricing for our base-case of another 50bp cut in November.”
  • “But even if payroll job growth remains around 100-150k and the unemployment rate steady at 4.2%, this alone would not necessarily convince us that further weakening in the labor market will not occur.”
  • Citi also expect AHE growth at a modest 0.2% M/M. “Generally, weakening labor demand should continue to put downward pressure on wage growth. However, there could be some volatility in average wages, for instance if job losses are concentrated in lower wage jobs. This may have been part of the reason for stronger wages in August.”
  • “Recent labor actions could increase wages in certain sectors, but this is likely to affect a small enough share of total payroll employment that the direct impact on average hourly earnings would be small.”
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  • Citi are clearly below consensus as they eye nonfarm payrolls growth of just 70k in September (cons. 150k) whilst they see the unemployment rate increasing to 4.3% and are “not far off from rounding up to 4.4%.”
  • Job growth has slowed broadly recently but “if anything, we have been surprised that job growth has not slowed more in sectors such as construction and leisure/hospitality and see growing risks of a sharper pullback in these industries.”
  • “While 70k job growth is not much softer than recent readings after revisions, the further weakening trend with the unemployment rate close to the Fed’s year-end forecast should solidify market pricing for our base-case of another 50bp cut in November.”
  • “But even if payroll job growth remains around 100-150k and the unemployment rate steady at 4.2%, this alone would not necessarily convince us that further weakening in the labor market will not occur.”
  • Citi also expect AHE growth at a modest 0.2% M/M. “Generally, weakening labor demand should continue to put downward pressure on wage growth. However, there could be some volatility in average wages, for instance if job losses are concentrated in lower wage jobs. This may have been part of the reason for stronger wages in August.”
  • “Recent labor actions could increase wages in certain sectors, but this is likely to affect a small enough share of total payroll employment that the direct impact on average hourly earnings would be small.”