In his September nonfarm payrolls preview report, Natixis's chief U.S. economist, Christopher Hodge, pointed out that even if Friday's September jobs report is stronger than expected, it may not increase the likelihood of an October rate hike, but it could add a new dimension to the game of the CPI data to be released two weeks later.

September non-farm payrolls forecast: 60,000 new jobs, with the three-month average falling to 81,000.

Hodge projects September's nonfarm payrolls to increase by 60,000 jobs, down from August's strong performance but still considered solid growth. If this expectation materializes, the three-month moving average will fall to 81,000. He points out that this year's nonfarm payroll data has been highly volatile, exceeding expectations most of the time. He expects the previously exceptionally high job growth in the leisure and hospitality industry and local government to return to normal, but solid growth in manufacturing and construction, driven by data center construction, will continue. Hodge also mentions that consumers' pessimistic assessment of their own employment prospects suggests potential weakness in the labor market. Evidence for this judgment comes from moderate wage growth and survey data showing that workers do not perceive sufficient job opportunities.

A normalization of the labor force participation rate could push the unemployment rate to 4.2%.

Hodge points out that worker anxiety coupled with a slowdown in labor supply has kept the unemployment rate unusually stable over the past year. The rise in the participation rate in August helped push the unemployment rate up slightly by 5 basis points, despite strong non-farm payroll data that month. He predicts that if the participation rate continues to normalize as expected, the unemployment rate will rise to approximately 4.2%. This assessment implies that even if non-farm payrolls remain robust, a slight increase in the unemployment rate should not be seen as a warning sign. Hodge explicitly states that labor market stability is already considered in the Federal Reserve's policy decisions, and a slight rise in the unemployment rate "is nothing to be overly concerned about."

Inflation remains the Federal Reserve's primary concern, with wage data being key.

Natixis believes that inflation remains the Fed's overwhelming top priority, and Hodge doesn't think Friday's jobs data will change that. He writes that labor market stability has already been incorporated into the Fed's policy considerations. Hodge emphasizes that a truly hawkish signal would only occur if the labor market starts to heat up and provide inflationary momentum. Therefore, he will be closely watching the average hourly earnings data, but expects another modest month-over-month increase of about 0.3% in September.

Strong nonfarm payrolls do not equal hawkish policy: three conditions are indispensable

Hodge's core conclusion is that strong nonfarm payroll data alone does not necessarily indicate a more hawkish monetary policy stance. He points out that strong employment data must be accompanied by a higher participation rate, a stable unemployment rate, and higher wage growth—all three are indispensable. Therefore, he does not believe Friday's data will add pressure for an October rate hike. On the contrary, if the data is significantly weaker than expected, it may lower the threshold for considering the October 14th CPI data as "acceptable."

October FOMC Outlook: Internal divisions are real, and a pause is the most likely path.

Looking ahead to the October FOMC meeting, Hodge believes there is a genuine disagreement within the committee regarding the true trajectory of inflation. He stated that unless CPI is higher than expected and widespread, the path of least resistance is to pause at the October meeting and reassess in December. He added a political dimension: the midterm elections will be held less than a week after the October meeting. Hodge indicated that they do not believe the Fed will compromise politically, but if there is a dilemma regarding whether to raise interest rates, a pause to avoid political backlash may be the most prudent path.

Summarize

Hodge's view provides a clear analytical framework for the September non-farm payroll report: strong employment data alone is insufficient to prompt a Fed rate hike; three conditions must be met simultaneously: rising participation rate, stable unemployment rate, and accelerating wages. He expects 60,000 new jobs in September, with the three-month moving average falling to 81,000. Normalization of the participation rate could push the unemployment rate to 4.2%, but this slight increase is not cause for excessive concern. Inflation remains the Fed's primary concern, and wage data is key to determining whether the labor market is providing inflationary momentum. Regarding the October FOMC meeting, Hodge believes there are genuine disagreements within the committee, and a pause is the most likely path unless CPI is higher than expected and widespread. The approaching midterm elections also provide a politically prudent reason for a "pause." Overall, Friday's non-farm payroll data is more likely to be a "neutral" event than a decisive signal for a change in policy direction.