September Employment Preview

We expect payrolls to rise 48k in September, a noticeable improvement from the August pace that reflects both a decline in policy uncertainty and an improvement in the economic outlook. This would bring the three-month average of payroll gains to 50k, from 29k previously as the dismal contraction – which coincided with peak policy uncertainty - from June moves further in the rearview mirror. The three-month moving average for payroll gains have steadily declined this year, falling from 232k in January. This is reflective of the slowdown in population growth from less immigration and has pushed the equilibrium pace for payroll growth lower. Still, few workers also means that even though the labor market is softening, labor will be comparatively more valuable and help keep a ceiling on the unemployment rate. Our forecast for unemployment this month is for a slight uptick to 4.4%. We expect payrolls to continue to be concentrated in just a few sectors, with private education and health services accounting for the entirety of gains in the last three months. Out of the 14 industries listed, nine experienced net job losses in August. As usual, healthcare and private education hiring led the way, adding 46k jobs, but this was the lowest total for this category since December 2022. Data on job openings earlier this week indicates that job openings in healthcare and private education has plummeted in recent months, a sign that demand for those jobs are waning, which is ominous for future payroll gains. For September though, we expect a partial rebound in this key sector.