The September jobs report will be released on Friday, providing insight into the current employment situation.

• The jobs market in September is predicted to resemble August's, with a gradual decrease in job openings and a slight rise in salaries.
• The Fed's ability to gradually lower interest rates will be closely monitored by markets, as indicated by the report.
• Despite a recent decline in labor market indicators, the situation is not dire.

The labor market in September is predicted to resemble August's, with a gradual decrease in hiring, a slight rise in wages, and a scenario that many policymakers had hoped for.

The Dow Jones consensus predicts that nonfarm payrolls will increase by 150,000 from the previous month's 142,000, with a steady unemployment rate of 4.2%. Additionally, the forecast calls for a 0.3% monthly wage gain and a 3.8% yearly increase, which is the same as August's annual rate.

If the numbers come in as expected, the Federal Reserve will have the opportunity to lower interest rates without feeling pressured to do so quickly, which could lead to a recession.

"Katie Nixon, chief investment officer at Northern Trust Wealth Management, stated that the jobs market is slowing down and becoming less competitive. The power dynamic has shifted back to employers, which will ease the wage pressure that has been a significant contributor to inflation. This soft landing has been in progress for some time, and it is evident in the current market conditions."

There is always the possibility of a substantial upside or downside surprise to the numbers, and the monthly revisions can be dramatic, causing uncertainty in jobs market analysis.

"David Kelly, chief global strategist at JPMorgan Asset Management, stated that while the job growth forecast is 150,000, it could range from 50,000 to 250,000. He advised people not to worry too much about the number."

The Bureau of Labor Statistics will release the report at 8:30 a.m. Although there will be one more nonfarm payrolls count before the presidential vote next month, the October report is expected to be distorted by the dock workers' strike and Hurricane Helene. As a result, September will be the last "clean" report before Election Day.

Looking for clues

Still, markets will in fact be watching the report closely.

Will the Fed be able to gradually lower interest rates in a manner consistent with previous easing cycles or will it need to repeat the dramatic 0.5 percentage point interest rate cut it implemented in September?

Policymakers approved a reduction and indicated another 50 basis points in cuts before the end of 2024 and a full percentage point in 2025. However, markets are pricing in a more aggressive schedule.

""If the number is strong, it won't affect their position, but a weak number might entice them to lower interest rates by 50 basis points," Kelly from JPMorgan stated."

Kelly stated that the Fed views the employment situation as a "mosaic" rather than just a single data point.

The bigger picture

Despite a recent decline in labor market indicators, the market has not yet fallen off a cliff. Surveys from the manufacturing and services sectors have shown slower hiring, while Fed Chair Jerome Powell described the labor market as solid but softening earlier this week.

The monthly hiring rate has not been as high as it was in June and August this summer since October 2013, when the unemployment rate was 7.2%, according to Labor Department data.

The ratio of available job openings to unemployed workers has decreased from 2 to 1 to 1.1 to 1 in just a couple of years.

The labor market has recently experienced a stasis, following a period of high turnover due to workers' confidence in finding better deals elsewhere.

Since December 2014, the quits rate has been at least 1.9%, and the separations rate, including Covid, has been at least 3.1% since December 2012.

"According to Joseph Brusuelas, chief economist at tax consultancy RSM, the leverage that labor had has dissipated or just eased as the economy has normalized. As a result, there will be less turnover, which is evident in their business and being heard from their clients."

If someone had informed Brusuelas during the Covid pandemic four years ago that the economy would currently be adding nearly 150,000 jobs a month with an unemployment rate in the low 4% range, he would have treated them to a steak dinner.