Citi analysts suggest that seasonal adjustments may have inflated September's employment figures. Contrary to the strong hiring narrative, a lower quit rate instead might have driven the employment numbers higher. Although the demand for labor in the U.S. has been weakening, Citi maintains a dovish outlook, anticipating significant revisions in employment data that could lead to a Federal Reserve interest rate cut of 50 basis points by December.
Despite robust September non-farm payroll data diminishing hopes for a quick Fed rate cut, Citi expects a 25 basis point reduction in November. The market previously anticipated more aggressive cuts, but this has been scaled back significantly. Some investors even speculate that the Fed's monetary easing might have already concluded for the year.
Veronica Clark, a Citi analyst, acknowledges the strong September figures but hints that a weaker October report might be overlooked due to impacts from hurricanes and strikes. A consistent increase in core CPI could result in the market pricing in a pause on rate cuts by November.
Historically low quit rates in August suggest that the seasonal adjustment might have inflated September's figures, leading to an anticipated correction in October. For sustained employment growth and to avoid rising unemployment, increased labor demand is necessary, which has shown weakening trends over the past year. The leisure, hospitality, and healthcare sectors contributed significantly to September's job growth, despite declining hiring rates.
The September report showed an encouraging drop in the unemployment rate to 4.05%, but underlying issues remain with prolonged unemployment duration and increasing numbers among young workers. This indicates a potential drastic correction in employment data ahead, prompting further rate cuts by the Fed.
