ABN Amro’s Rogier Quaedvlieg notes September US labour market data came in weaker than expected, with payrolls at 29k versus consensus 90k and prior months revised down by 60k. He see the report as mixed but consistent with its base case and reducing pressure for an October Fed hike.

Weaker jobs and wages temper Fed

“The September labour market report was somewhat weaker than we expected, although its qualitative picture broadly matched our expectations.”

“The unemployment rate rose to 4.2%, largely because the participation rate increased by 0.2pp. Thus, while the headline numbers point to a soft report, the underlying picture is more mixed: unemployment rose partly because people on the sidelines resumed looking for work. One notable figure was the modest 0.1% m/m increase in average hourly earnings, which lowered the y/y rate to 3.0%.”

“This is good for the inflationary outlook, but potentially negative real earnings growth could weigh on consumption.”

“The three-month average of 51k is solid given labour supply, but it does not indicate a hot or tight market. This report, especially alongside the downside surprise in the PCE report earlier this week, removes the pressure on the Fed to hike in October.”

“We still expect persistent inflationary pressure from the energy shock to prompt one more Fed hike in December, for reasons similar to those in September: to prevent pass-through to consumer prices and wages.”