Tonight! The first major data is here. Will the "late arrival" of the U.S. September non-farm payrolls bring interest rate cuts "back into view"?

After nearly two months of a federal government shutdown in the United States, the market finally welcomes the September non-farm payroll data. The overnight Federal Reserve meeting minutes released hawkish signals, and with the October non-farm data not being published, traders have almost abandoned the expectation of a rate cut in December. Will this data, delayed by 43 days, bring the December rate cut "back into view"?

The U.S. Bureau of Labor Statistics will release the September non-farm employment report at 9:30 PM Beijing time tonight. According to statistics, Wall Street expects an increase of 51,000 non-farm jobs in September, up from 22,000 in August, but the forecast range varies from a decrease of 20,000 to an increase of 105,000, indicating significant market divergence. The unemployment rate is expected to remain at 4.3%, and the average hourly wage is expected to increase by 0.3% month-on-month. Goldman Sachs expects an increase of 80,000 jobs, slightly above market expectations, while JP Morgan predicts an increase of 50,000.

Economists point out that tightening immigration policies and the expansion of artificial intelligence applications are reshaping the labor market from both supply and demand sides. The economy now only needs to create 30,000 to 50,000 jobs per month to keep up with the growth of the working-age population, far below the approximately 150,000 needed in 2024.

The cooling trend in the labor market has prompted a reassessment of the Federal Reserve's policy path. Although the October meeting minutes of the Federal Reserve show that many policymakers are cautious about further rate cuts, economists believe that if the September data shows stability or further deterioration in the labor market, it could still influence the policy decision in December.

It is worth noting that this longest government shutdown in history has forced the Bureau of Labor Statistics to cancel the release of the October employment report, which will be combined with the November data and published on December 16. This means that the Federal Reserve will not have the November employment data as a reference when it holds its policy meeting on December 9-10, further highlighting the importance of the September non-farm data.

Significant Divergence in Wall Street Expectations: Employment Data Faces Bidirectional Risks

There is a significant divergence in market expectations for the September non-farm data, with the forecast range varying from a decrease of 20,000 to an increase of 105,000. Goldman Sachs expects an increase of 80,000, above the market consensus of 51,000, while JP Morgan expects an increase of 50,000, slightly below consensus.

Factors supporting stronger-than-expected employment data mainly come from big data indicators.

The alternative employment growth indicator tracked by Goldman Sachs averaged 73,000 in September, reaching 128,000 when excluding ADP data. Goldman Sachs' comprehensive employment growth tracking indicator improved from a stagnation state in the summer to 85,000 in September, then slowed to 50,000 in October.

Historical revision patterns may also provide support.

The August non-farm data showed a clear tendency to be weak upon first release. In the past 15 September employment reports, 12 have revised the August data upward, with an average upward revision of 38,000. About two-thirds of net revisions are usually completed in the first revision, with the median of the first and second revisions being around 60,000 However, the adverse factors are also significant. Goldman Sachs expects government employment to decrease by 5,000, with a reduction of 10,000 in the federal government and an increase of 5,000 in state and local governments. The federal hiring freeze, which will continue until 2026, will continue to weigh on federal employment. Employment sub-indicators from manufacturing and service sector surveys both slightly declined in September and remain in the contraction zone.

It is noteworthy that a series of leading indicators such as the "small non-farm" ADP, job vacancies, and initial unemployment claims have revealed signs of fatigue in the labor market:

In the September survey period, the number of initial unemployment claims was 232,000, basically unchanged from the previous value of 234,000. The number of continuing unemployment claims fell from 1.944 million to 1.926 million.

Job vacancy data presents conflicting signals. August JOLTS job vacancies rose from 7.208 million to 7.23 million, exceeding the market expectation of 7.19 million, but other job vacancy alternative indicators showed declines in both September and October.

The Conference Board's labor differential—the difference between the proportion of respondents who believe jobs are plentiful and those who believe jobs are hard to find—fell by 2.4 percentage points to 8.7 in September, the lowest since February 2021, and then slightly rebounded to 9.4 in October.

The September ADP private sector employment report showed a decrease of 32,000 jobs, far below the market expectation of an increase of 50,000.

August data was also revised down from an increase of 23,000 to a decrease of 3,000. The Chicago Fed's unemployment rate estimate rose slightly from 4.32% to 4.34%. Revelio Labs' preliminary estimate for non-farm employment in September was 60,100, later revised to 33,000.

The U.S. Labor Market Faces Dual Contraction in Supply and Demand

The U.S. labor market is undergoing structural changes on both the supply and demand sides. On the supply side, the reduction in immigration has become the main reason for the shrinking labor supply.

Economists indicate that the monthly job creation needed to sustain the growth of the working-age population has significantly decreased from about 150,000 in 2024 to 30,000 to 50,000. Stephen Stanley, Chief U.S. Economist at Santander U.S. Capital Markets, pointed out:

"The slowdown in job growth primarily reflects changes in labor supply, which strongly indicates that the labor market overall is slightly loosening, but not to a significant degree."

Unemployment rate data also corroborates this judgment. Although the unemployment rate rose in August, it has fluctuated between 4.1% and 4.2% for most of this year. This level, close to a four-year high, reflects the simultaneous weakening of supply and demand in the labor market.

The pressure on labor demand is equally severe. The rapid proliferation of artificial intelligence is eroding job demand, particularly for entry-level positions, making it difficult for recent college graduates to find jobs. Economists say that artificial intelligence is driving an "employment growth-less" economic model.

The trade policies of the Trump administration have also been criticized for creating an uncertain economic environment, weakening the hiring capacity of businesses, especially small enterprises. Boston College economics professor Brian Bethune stated:

"The current environment is particularly unfavorable for small and medium-sized enterprises, and most of the job losses we see come from these businesses. This is a highly polarized economy."

September data may still affect December interest rate decision

Although the September employment report is already "outdated" data, some economists believe that if the data shows a stable or further deteriorating labor market, it may still impact the Federal Reserve's monetary policy meeting on December 9-10.

According to an article from Wall Street Insight, the Bureau of Labor Statistics stated that the October employment report has been canceled due to the failure to collect household survey data needed to calculate the October unemployment rate, and the relevant data will be combined with November data and released on December 16, just after the Federal Open Market Committee (FOMC) meeting in December.

Analysis indicates that this means Federal Reserve officials will not have access to the latest employment data at the December meeting, which increases the relative importance of the September report.

Martha Gimbel, Executive Director of the Budget Lab at Yale University, stated:

"The Federal Reserve is uneasy about further rate cuts. If you see a truly weak report, it could sway the Fed, but it would need to be a fairly weak report."

The latest minutes released by the Federal Reserve show that "several" participants suggested they may not believe the December meeting is suitable for another 25 basis point rate cut. Many participants indicated that, based on their economic outlook, it may be appropriate to maintain interest rates unchanged for the remainder of the year. The hawkish signals released by the Federal Reserve further dampened expectations for a rate cut in December.

Meanwhile, the U.S. Bureau of Labor Statistics stated that it will not release the October non-farm payroll report, but will incorporate the relevant employment data into the November report. Following this announcement, investors believe the likelihood of a rate cut by the Federal Reserve in December has decreased, as the delay in official data may lead to greater divergence among decision-makers regarding the outlook. Bond traders have almost abandoned bets on a rate cut in December.

Goldman Sachs foreign exchange strategist Karen Fishman also pointed out that the next non-farm data will be released after the Federal Reserve meeting, which means the weight of the September data may be underestimated by the market, but as the only available official employment indicator, it will still have a significant impact on market sentiment.

Weaker-than-expected data may reignite recession risks

Goldman Sachs Senior Market Advisor Dom Wilson pointed out that the upcoming non-farm data has asymmetry: weak data will be seen as evidence that the job market is already weak, but strong data can only provide limited reassurance, as some more recent data from October shows weakness.

He believes that weaker-than-expected data, especially an increase in the unemployment rate, will intensify concerns about the state of the labor market and may reignite attention to recession risks Amid significant divergence in employment data expectations, Wall Street investment banks are pricing the market reaction after the data release asymmetrically. JP Morgan's market intelligence department predicts a "dumbbell-shaped" distribution for market reactions to different data outcomes, specifically:

New jobs above 100,000, the S&P 500 index will be flat to down 1.5%, with a probability of 5%;

Between 70,000 and 100,000, the index will fluctuate within a range of plus or minus 0.5%, with a probability of 25%;

Between 30,000 and 70,000, the index will rise by 0.5% to 1%, with a probability of 40%;

Between 0 and 30,000, the index will rise by 0.25% to 0.5%, with a probability of 25%;

Below 0, the index will be flat to down 1%, with a probability of 5%.

At the same time, the options market is pricing in about 2% volatility for contracts expiring on November 3, although this may also include a volatility premium from Nvidia's earnings report.

JP Morgan's trading desk believes that data meeting expectations represents a "Goldilocks" scenario, sufficient to dispel concerns about an economic slowdown but not enough to reignite inflation worries