QQQ - September Jobs Report Preview: The Calm Before The Strike

2023-10-04 08:30:55 ET

Summary

• The Labor Department will release their September payroll data on Friday.
• Consensus estimates stand at 170K additions, down from the 187K reported in August.
• I expect the release to be in line with estimates, if not slightly higher.
• Any dullness in the report would likely be followed by increased volatility in the months ahead due to the effects of ongoing labor movements.

The September jobs report is due for release on Friday ahead of the busy earnings season. Economists surveyed by Dow Jones expect total job additions of 170K, down from the 187K reported in August. Unemployment is expected to tick down slightly to 3.7% from 3.8%. Here are my expectations leading up to the release.

No Impact From Ongoing Strikes

The ongoing strike by the United Auto Workers (“UAW”) has been in focus through the better half of September and now into October. The negotiations pertain to new contracts for approximately 146K workers at the “Detroit Three,” which includes General Motors ( GM ), Ford ( F ), and Jeep maker Stellantis ( STLA ). Given that this is the first time that all three have been hit by a UAW strike at the same time, wide-ranging impacts are expected.

The full effects from a jobs standpoint, however, will likely be seen in the Q4 reports, beginning in October, and not in September’s release. This is due to the reference period used in both the household survey and the establishment survey. Since the strike began on the 15 ^th of September, little or no jobs data would have been picked up by the BLS’ report, which uses the 12 ^th day of the month as its primary benchmark.

Downward Revisions In August’s Data

The effects of various labor movements will likely still be felt in the September jobs report. In August, for example, truck transportation lost 37K jobs, due primarily to the closure of Yellow Corporation ( YELLQ ) following prolonged labor woes . In addition, strike activity led to the loss of 17K jobs in those centered around film making.

While the losses were reflected in the print, I am expecting revisions upward in the job losses. Measuring the impacts of strikes on employment can be challenging due to timing aspects. This often results in one or more re-measurements. Since August was one of the first months where the data was truly reflected, it’s reasonable to expect revisions to that data.

Any revision to the strike data would also likely result in a revision to the previously reported change in total nonfarm payrolls. And this would be a continuation of the trend seen in the past two months. In August, the change in total payrolls was revised downwards by 110K. This followed a combined 49K downward revision in the July release. I'd expect a similar downward revision in September.

Increased Participation

A persistently inflationary environment is driving more workers back into the workforce. In August, labor force participation rose to 62.8%. This was a notable increase after being essentially flat since March. It also marked a new post-pandemic recovery high .

While still below pre-pandemic levels, the increase may have further room to run. Aside from high inflation, more certainty surrounding flexible work arrangements, such as hybrid models, are encouraging key demographics to return to the workforce; women, in particular . In August, the participation rate for women was 57.7%, not far off the pre-pandemic benchmark of 57.9%.

The bump in participation levels is encouraging, especially given the accelerated retirement of the older workforce in recent years.

If participation rises, however, the unemployment rate will likely turn higher. This would be at odds with consensus estimates, though I wouldn’t be surprised if the statistic remained unchanged or higher in September, given the current momentum in the participation from key demographics.

Slowing Wage Growth

The rise in participation levels may factor into a further cooling in wage growth. This would be because of the lower competition for workers among businesses. Signs of this were seen in August with the rise in participation and the corresponding easing in wage growth; earnings grew 4.3% from a year ago, below the 4.4% consensus.

One measure working against continued cooling is the unexpected jump in job openings in August. Openings were 9.6M versus the 8.75M expected. The effects of ongoing labor movements are also a key wildcard in future months.

At the same time, however, the quit rate is dropping. In August, the rate was 2.3% for the second month in a row. This is down from a peak of 3% in early 2022. The declining quit rate is notable since quitting and joining elsewhere is one of the top ways employees lock in outsized wage gains.

Job postings on Indeed also continue to be below prior year levels and are hovering around the flatline. This contrasts with openings reported elsewhere.

My Prediction

I expect the September jobs report to reflect a calm before the strike. Total job additions are likely to be in line with estimates, if not slightly higher. On Tuesday, the Labor Department reported 9.6M job openings in August, an uptick from July’s reported 8.9M. This indicates the job market is still strong, albeit cooler than last year. Any increase in hiring activity could perhaps also be attributable to staff-up momentum ahead of the holiday season.

Though unemployment is expected to drop to 3.7%, I wouldn’t be surprised to see the data point remain unchanged at 3.8% or even up to 3.9%. An increase in the participation rate, particularly among women, would be one potential driver of this.

While I expect September’s print to be relatively tame in relation to estimates, I am expecting data volatility to increase through Q4, as the impacts of ongoing work stoppages filter their way through various cogs of the economic engine. Downward revisions to previously reported data are also likely, given the inherent uncertainty involved in a strike and its impact on reported payroll figures.

Market action following the report will most likely continue to be driven by bond yields. Observers should expect a rise in yields on strong data. This will then likely pull the three major equity indexes, with the Nasdaq ( NDX ) most at risk. As a safe-haven, I’d turn to healthcare and energy stocks, as well as elevated holdings of cash and equivalents in the event of any resulting market weakness.

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