Strong September Jobs Seen as an Outlier Amid Ongoing Labor Demand Concerns: Citi

Investing.com — The unexpectedly strong jobs report for September has led to a reassessment of expectations regarding a significant interest rate cut from the Federal Reserve. However, analysts at Citi consider this strength to be an anomaly, as ongoing concerns about labor demand persist.

In a note released on Monday, Citi analysts expressed skepticism about the sustainability of the positive data, predicting a “reversion to weaker dynamics at some point in the next few months.”

The September report revealed an addition of 254,000 payroll jobs and a decline in the unemployment rate to 4.05%. Despite these figures, analysts caution that they may not accurately reflect a robust labor market. They argue that the strength seen in the data could stem from low labor market turnover, affected by seasonal adjustments rather than an actual increase in worker demand.

From the supply perspective, the significant growth in household employment was mainly driven by an atypical rise in government jobs, which analysts do not expect to be replicated in the near future. Excluding this surge, the unemployment rate could have risen to 4.3%, indicating potential vulnerabilities within the labor market.

In the leisure and hospitality sector, which accounted for approximately one-third of the new job gains with 78,000 positions added, hiring rates are cooling to levels reminiscent of April 2020, raising concerns about the sustainability of this growth, according to analysts.

Should upcoming labor market data continue to mirror the strength of the September report, it may suggest that the unemployment rate has stabilized at a low level, supporting the notion of a soft landing for the economy. However, Citi remains doubtful, asserting that its outlook of a weakening labor market is grounded in trends observed across various datasets, indicating that the strong jobs report from September is likely an outlier.