Commentary Directory

A Look at the Fragile US Labor Market Ahead of the Nonfarm Payrolls Report

Jacob Hess
October 05, 2023

The eagerly awaited nonfarm payrolls report for September is scheduled for release on Friday, October 6th, serving as an official barometer of the current state of the US labor market. This report is more than just a set of numbers; it's a critical tool that the Fed uses to gauge the health of the economy. In recent times, the Fed has been keeping a particularly close eye on labor market indicators to monitor wage inflation, which could influence their decisions on interest rates. As we prepare for the latest report, it's useful to first examine some other key labor market metrics to get a sense of what the landscape looks like. Over the past few months, these indicators have started to flash warning signs, suggesting a labor market that is increasingly fragile.

From Challenger, Gray & Christmas

The ADP National Employment Report for September showed a significant slowdown in job growth, the slowest since January 2021. The report indicated an increase of just 89,000 jobs, a sharp decline from the 180,000 jobs added in August. Large establishments were the main culprits behind this slowdown, shedding 83,000 jobs and nullifying the gains made in the previous month. The goods sector barely moved the needle, adding a mere 8,000 jobs, while the service sector saw a modest growth of 81,000 jobs. Wage growth is also showing signs of fatigue. For those who stayed in their jobs, the year-over-year pay increase for September was 5.9%, a slight dip from 6.0% in August. This marks the 12th consecutive month of slowing wage growth. Similarly, those who changed jobs saw their pay gains shrink to 9% YoY, down from 9.7% in August.


The Challenger Job Cuts Report revealed that U.S.-based employers announced 47,457 job cuts in September, a 37% decrease from August but a 58% increase compared to the same month last year. The third quarter of this year saw 146,305 job cuts, a staggering 92% increase from the same quarter in 2022. Interestingly, the technology sector, which has led in job cut announcements this year with 151,989—a 716% increase from last year—saw only 2,537 job cuts in September, the lowest since June 2022. Another signal of the level of job cuts, initial jobless claims, was just 207,000 in the last week of September, a minor increase of 2,000 from the previous week. The monthly average for September stood at 210,400, the lowest since the start of the year and a significant drop from the 256,750 average in June.

The key takeaway is that the hiring pace is decelerating, a trend that has become more evident over the past quarter. However, it's not all doom and gloom; unemployment isn't skyrocketing either. The spike in jobless claims and job cuts, particularly in the tech sector, seems to have plateaued. As for the upcoming BLS employment report, don't hold your breath for a big jump in employment numbers. We're likely looking at a low increase, possibly in the low 100,000s or even below. However, the unemployment rate is expected to remain relatively stable, given the slight uptick reported previously.