PRIVATE INDICATORS SHOW US LABOR MARKET WEAK
The US Labor Department’s September employment report, whose scheduled release on Oct. 3 was among those that have been postponed since the shutdown began last week, was expected by economists in a Bloomberg poll to show a 54,000 increase in nonfarm payrolls from August’s total of about 159 million. But in the absence of this data, markets are now looking at private data sets to understand where the US labor markets stand currently.
As per ADP research data, one of the few private proxies for tracking US labor data, Private-sector payrolls decreased by 32,000 in Sep after a revised 3,000 decline a month earlier. The figure was below all estimates in a Bloomberg survey of economists.
ADP periodically recalibrates their figures based on an expansive series from the Bureau of Labor Statistics that includes state unemployment insurance tax records and covers nearly all US jobs. The adjustment resulted in a reduction of 43,000 jobs in September compared to pre-benchmarked data.
ADP tends to follow NFP (Non-Farm payrolls data) with a 1-month lead lag time. This implies that despite the strong economic growth US economy saw in the second quarter, this month’s release further validates what we’ve been seeing in the labor market, that US employers have been cautious with hiring.
The ADP data stand to be the highest profile report on the labor market as the government’s September employment numbers, scheduled for 3rd Oct will be delayed given the shutdown.
In another private forecast for US labor market change in Sep, Revelio labs estimated that NFP was 60k. Their non-farm employment measures the total employment in the US (public and private) leveraging individual level data collected from online professional profiles. The monthly change in this total employment is a proxy for number of jobs added in the economy during the month. The growth in employment was again driven by the education and health services sector.
Carlyle Group, the investment manager whose portfolio companies employ more than 700,000 people globally also released it’s inhouse prop data on US labor market for Sep. Carlyle estimates that just 17,000 jobs were created, among the weakest results since the US economy emerged from the 2020 recession. Carlyle for more than a decade has been calculating its own estimates of US GDP, consumer spending and inflation “to serve as timely proxies when government data is delayed or unavailable,” and has released them selectively from time to time in that circumstance.
In another set of labor data, prepared by software provider Intuit, employment at small businesses declined by 48,400 jobs in September. Using anonymized data from 533,000 small businesses to track employment, Intuit found employment decreased in 19 of 20 states, across all eight US regions and in all 12 sectors tracked. The decline in employment was the largest since February.
Summary: We have been pointing out in our opinion pieces for past few months that US employment situation is going to get weaker as time passes. There are millions of people struggling to find jobs, with more than a quarter of the jobless having been out of work for over half a year.
The delicate balance between low hiring and low firing in US labor market might soon change as corporates go slow on hiring further as their revenues take a hit due to consumer spending slowing down as tariff increases finally result in increase in prices. The "churn" in the labor market has fallen below pre-Covid levels, with people staying in their current roles longer and locking out newcomers, particularly in sectors such as construction and professional services.
We believe Oct Nonfarm payroll to be a large -ve no to the tune of -50k. This will be because of roughly 150k federal workers had accepted deferred resignation offers and, of those 150k, 100k would leave the government at the end of September. This suggests that October NFP (scheduled to print in early November) is likely to be weighed down by 100k due to DOGE-led deferred resignations, and we expect the additional negative impact of 50k to be reflected in subsequent months.
Hence, we continue to expect front loaded cuts by Fed of 25 bps each in the next 4 meetings to reach a terminal rate of 3% by Mar’26.
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