With Friday’s nonfarm payroll report on the horizon, the labor market is expected to show a modest increase of 140,000 jobs, slightly down from August's 142,000.

Wednesday’s ADP National Employment Report for September signaled some resilience. The private sector added 143,000 jobs, up from 99,000 in August, bolstered by gains in goods-producing industries like construction and manufacturing.

Pay gains have slowed, with job-stayers seeing a 4.7% increase, marking a potential shift in wage pressure that could influence Federal Reserve policy.

The slowdown in job creation, combined with tempered wage growth, points to a cooling labor market that may give the Fed room to consider additional easing measures.

Markets are anticipating another rate cut in November, as the CME FedWatch tool indicates traders are assigning a 63.7% probability to a 25-basis-point rate cut in November, while the likelihood of a 50-basis point cut stands at 36.3%.

If the nonfarm payrolls come in weaker than expected, it could strengthen the case for the Fed to act more aggressively, particularly as inflationary pressures appear to be moderating.

Expert Weighs Labor Market Outlook

Louis Navellier, chairman of Navellier & Associates, said the expectations for Friday's payroll report are low, partly due to potential disruptions caused by Hurricane Helene. He also highlighted concerns in the manufacturing sector, particularly noting that "the manufacturing recession persists."

Navellier also drew attention to the ongoing International Longshoreman Union strike, which has "effectively shut down three dozen U.S. ports." He expressed concerns that this strike could lead to significant disruptions, particularly for manufacturers, as "auto manufacturers around the world are increasingly warning about part shortages."

Looking ahead, Navellier said that October is typically a strong month for the markets, though it "often starts slow and then picks up as third-quarter earnings announcements commence." He expects the second half of the month to outperform the first, driven by positive momentum from earnings reports.

Sectors Drive Fed Outlook

Key sectors such as leisure and hospitality, which added 34,000 jobs in September, and construction, with 26,000 new positions, will be closely watched. Any signs of weakening in these areas could indicate broader economic softness, adding urgency to Fed deliberations on the path forward.

On the other hand, a stronger-than-expected payroll report could temper expectations for immediate rate cuts, keeping markets in suspense.

As Friday approaches, all eyes remain on whether the labor market can maintain momentum or whether the Fed will step in to stimulate further growth.

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This article was generated using artificial intelligence and was reviewed by Benzinga editors; image was created using artificial intelligence via Midjourney.