Friday’s labour market data is set to land just as simmering inflation and signs of broader price pressures are combining to push Treasury yields to multi-decade highs. Indeed, last week saw business activity figures accelerate at the fastest pace in five years. That means Fed policymakers are currently fully focused on the price stability side of their mandate, in the knowledge that the employment side is relatively stable. But NFP is a huge favourite of traders as it has the capacity to spark volatility and surprise, so Friday’s release will be well-watched. That is especially due to the blockbuster prior data, and the chance of some payback through revisions or upcoming weakness.

As a reminder, we got a stellar US jobs report for August with a 162,000 headline plus an additional 55,000 upward revisions to the past two months. With Fed Chair Warsh then describing the US at full employment, the data pushed up rate hike bets for the September FOMC meeting, which of course rate setters followed through on. The jobless rate remained steady at 4.1% despite an improvement in the participation rate. Wage growth was benign, rising 3.1% y/y.

Consensus Expectations

The current estimate is for 90,000 non-farm jobs to be added to US payrolls in September, which would be above the three-month average of 71,000. That print would sit near the top of the estimated range consistent with balance between labour demand and supply. The unemployment rate is predicted to remain unchanged at 4.1%, in line with the FOMC’s latest projection in September for the jobless rate at the end of the year. However, the recent decline in weekly continuing claims could point to a risk that it falls. Average hourly earnings are also seen steady at 0.3% m/m in July, with the annual reading at 3.1% y/y. This could be an increasingly important data point to watch for signs of any retightening in the labour market.

Jobs growth continues to be dominated by just three sectors. Private education and healthcare services, government and leisure and hospitality have been supporting the economy for some time. This concentrated story is underscored by the fact that cumulatively, all other sectors of the economy have lost jobs since the end of 2022. Ultimately, that implies the economy is enjoying big productivity gains and highlights robust corporate profitability in the US.

Other employment indicators & Fed

Not too much has altered at the Fed regarding the labour market since Warsh’s Jackson Hole speech. There he said that “on the employment side of the Fed’s dual mandate, our country is doing well. Labor markets are quite stable. The jobless rate, at 4.1%, remains low by historical standards and has not changed much for a couple of years.”

Otherwise, economists say weekly readings from ADP imply a monthly job creation pace of around 80,000 through early September. In addition, the preliminary September S&P Global US PMIs showed increased activity across both services firms and manufacturers, including in the employment components of both surveys, while the weekly jobless claims remain very low. That said, underlying job growth is likely being restrained by a smaller labour force as immigration slows and population aging continues. Leading survey data like NFIB hiring plans also suggests some near-term weakness.

Money market pricing & reaction

As of Wednesday, traders price in around a 45% chance of a rate hike at the FOMC meeting in late October and a 32bps of cumulative tightening by year end. That October pricing has fallen sharply this week from above 70%, after the Fed’s Williams poured cold water on back-to-back rate hikes. It had been a fairly aggressive path given the swift repricing seen since the start of September, when there was just an 18% chance of a rise. Interest rate differentials remain a key source of fundamental support for the greenback. Tuesday’s upside break higher in the Dollar Index was not wholly convincing in the end, though bulls will still be aiming for the 2026 high at 101.80. That should offer strong resistance with prices already modestly overbought.  

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