Strong September jobs an outlier as labor demand worries persist: Citi

Source Investing

Investing.com -- The strong September jobs report caught many by surprise, putting the brakes on bets for another jumbo Federal Reserve rate cut, but Citi believes this strength was an outlier as labor demand remains a worry.

"[D]etails of September data leave us skeptical that this will be the case," Citi analysts said in a Monday note, expecting a "reversion to weaker dynamics at some point in the next few months."

The September report showed 254,000 payroll jobs added and the unemployment rate dipping to 4.05%, but it may not reflect a resilient labor market, the analysts said. 

The strength could be more a result of low labor market churn, influenced by seasonal adjustments rather than genuine demand for workers that could likely course correct in the months ahead.

On the supply side, the strong household survey was largely driven by an unusually large increase in government employment, which the analysts don't expect to see repeated.

Without this surge, the unemployment rate could have risen to 4.3%, highlighting potential fragility in the labor market, analysts suggest. 

The 78,000 job gains seen in the leisure and hospitality sector, which accounted for  for a nearly  a third of the total new positions, comes at a time when hiring rates in the sector have been cooling to levels seen during April 2020, flagging concerns about sustainability," the analysts said.

If, however, the incoming labor market data continue to reflect the strength of the September report, then that would confirm that the unemployment rate has stabilized at a low level, pointing to a soft landing for the economy, 

But Citi believes this is unlikely as its view of a weakening labor market "has been based on trends seen across many different datasets" suggesting "the very-strong September jobs report looks like the outlier."

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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