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

The recent jobs report for September took many by surprise, diminishing expectations for an additional significant rate cut by the Federal Reserve. However, analysts at Citi contend that this report reflects an anomaly, as concerns about labor demand persist.

Citi analysts expressed skepticism regarding the strength of the September data, suggesting in a recent note that a “reversion to weaker dynamics” is likely within the next few months.

The report indicated an addition of 254,000 payroll jobs and a dip in the unemployment rate to 4.05%. Nonetheless, analysts caution that these figures might not accurately portray a robust labor market. They argue that the apparent strength could stem from a low turnover rate in the labor market, influenced by seasonal adjustments rather than a genuine increase in demand for workers. This dynamic may shift in the coming months.

On the supply side, an unusually large rise in government employment primarily drove the robust household survey results, a trend that analysts do not expect to see repeated. Without this increase, the unemployment rate could have reached 4.3%, highlighting potential vulnerabilities within the labor market.

Additionally, the leisure and hospitality sector experienced gains of 78,000 jobs, making up nearly a third of new positions. However, hiring rates in this sector have begun to cool, reflecting levels not seen since April 2020, which raises concerns about the sustainability of these gains.

If future labor market data continues to support the strength shown in the September report, it could indicate that the unemployment rate has stabilized at a low level, suggesting a soft landing for the economy. Nonetheless, Citi remains doubtful, emphasizing that their perspective on a weakening labor market is informed by trends observed across various datasets, which indicate that the strong September jobs report is likely an outlier.