Non-farm payrolls strong? Wall Street still skeptical: Significant adjustments expected in October, with the possibility of another 50 basis point rate cut by the Federal Reserve in December

Contrary to the mainstream view on Wall Street, Citigroup continues to adhere to a "dovish" forecast, stating that the seasonal adjustment issue has magnified the September non-farm data, and the future employment trend will see a downward revision in the coming months. This will lead to the Fed cutting rates by 25 basis points in November, and then returning to a 50 basis points rate cut in December.

Following the strong September non-farm data, the market's expectations for a rate cut by the Fed within the year have been significantly reduced. Traders have canceled bets on a 50 basis points rate cut in November, with expectations for the Fed's rate cuts over the next four meetings being less than 100 basis points. Some investors even believe that the Fed's monetary easing policy for the year may have already ended.

However, Citigroup still maintains an optimistic outlook. Analyst Veronica Clark stated that the September non-farm report was very strong. Considering that there is only one October non-farm report left before the November Fed meeting, and the impact of hurricanes and strikes may cause the market to "overlook" the weaker October employment data, a 25 basis points rate cut by the Fed in November is now the most likely scenario. If next week's core CPI matches the bank's expected growth (a 0.3% increase month-on-month), the market may even start pricing in a pause in rate cuts for November.

Regarding the September data, Citigroup believes that seasonal adjustments may have magnified the September data. Lower quit rates, rather than strong recruitment, boosted the employment figures.

Citigroup emphasizes that to maintain robust job growth and prevent a rise in the unemployment rate, the Fed needs to see an increase in labor demand (recruitment).

However, over the past year, the trend of weakening labor demand in the United States has been consistent (despite significant fluctuations), most notably in declining recruitment rates (August recruitment rates were at levels not seen since September 2008), leading to an increase in the unemployment rate.

At the same time, job growth in September was mainly driven by the leisure and hospitality industry (+78,000) and the healthcare sector (+72,000). This contrasts sharply with the declining recruitment rates in these two industries and the decline in actual restaurant sales in the first two quarters of the year. Employment in these industries typically declines after the summer.

The extremely low quit rate shown in the August JOLTS data (reflecting the entire month) suggests that the quit rate in the first two weeks of September may have been particularly low. A low quit rate would imply strong seasonal adjustment growth, which may be revised in October.

Citigroup states that the most encouraging part of the September employment report was the decline in the unemployment rate to 4.05%. However, there are still signs that labor demand remains weak in household surveys - the duration of unemployment is increasing again, and the number of unemployed young workers is still rising Therefore, the expected employment data will undergo more drastic revisions, pushing the Federal Reserve to cut interest rates by 50 basis points in December