As the Fed pivots its attention towards labour market weakness, markets will be closely watching the September non-farm payrolls report. The government shutdown has put the Friday release into question, but the data will be key for the Fed and whether it cuts interest rates again, once or twice before year-end. Payrolls growth has slowed sharply, and recent benchmark revisions to March 2025 have suggested the recent slowdown is coming from a far weaker position than previously thought. That effectively wiped out half the job gains over the prior 12 months. The dollar remains stuck in a long-term downtrend, and will need a decent data set to find a bid.

The labour department is expected to report that the pace of hiring rose in September by 52,000 jobs. This compares with August’s 22,000 and would be around the projected breakeven rate, which Fed Chair Powell estimates is between 0-50,000 needed to keep the unemployment rate steady. He recently noted that the labour market is cooling, and that labour demand is softening faster than supply, partly influenced by immigration and possibly tariffs. Although payrolls are weakening, Powell still sees unemployment as low, with the latest Fed projections forecasting the jobless rate at 4.5% at the end of this year and easing in the years ahead, before settling at 4.2% in the long-term. For September, consensus sees the u/e rate unchanged at 4.3%, while wage growth is also seen steady at 0.3% y/y.

 Employment indicators and other factors

The usual leading metrics for the jobs report are limited as we await some surveys, while initial jobless claims have been volatile in recent weeks due to a surge in fraudulent claims in Texas which saw the figures spike higher and then retrace back to more average levels seen in recent months. The NFIB survey of hiring intentions points to solid growth in private payrolls of around +70,000.

Details in the report will be of interest as over the past two and a half years, close to 90% of all jobs added have come from just three sectors. Government, private health and education, and leisure and hospitality jobs are typically not associated with being growth engines of the economy. In fact, if these were stripped out, payrolls would have dropped over the last four straight months.

Fed policy and money market pricing

There is currently around 44bps priced in for the rest of 2025, meaning a quarter point cut in October and just under an 80% chance of another at the last FOMC meeting of the year in December. The Fed itself sees the Fed Funds rate target falling to 3.50-3.75% this year (implying two 25bps cuts). Dovish pricing took a knock last week after stronger-than-expected economic data with GDP revised up significantly for Q2.

Market reaction

A weak report could see the chance of a second rate cut in December get more fully priced in. That would likely mean the dollar sells off as it continues its move below the 50-day and 100-day simple moving averages. Stocks and gold would get a further lift too, though a very bad report would cast a shadow over the outlook for the economy going forward.

Better than expected figures would give the dollar a lift and likely hold back further gold gains. But the trend in these assets remains strong and markets will want to see more evidence of jobs growth in the weeks ahead.