WRAPUP 1-US job growth expected to slow in September; unemployment rate likely steady

By Lucia Mutikani

WASHINGTON, Oct 2 (Reuters) - US job growth likely slowed in September and the unemployment rate is forecast to have been 4.1% for a third straight month, suggesting the labor market remained stable heading into the fourth quarter.

The anticipated moderation would follow a surprise jump in nonfarm payrolls in August, which economists partly attributed to volatility linked to the model the government uses to strip out seasonal fluctuations from the data. The Labor Department's Bureau of Labor Statistics will publish its closely watched employment report on Friday.

"I am expecting a reaffirmation of the 'low-hire, low-fire' American labor market," said Joe Brusuelas, chief economist at RSM. "At this point, we're at full employment, and I think there will be nothing in the jobs report that will cause the Federal Reserve to change its bias from one more hike this year."

Nonfarm payrolls likely increased by 90,000 last month after surging by 162,000 in August, a Reuters survey of economists predicted. Estimates ranged from as low as 35,000 to as high as 180,000. Economists expected August's job count, which was the largest in five months, to be revised down. The initial payrolls print for August has typically been weak, making this year's jump an anomaly.

"We suspect that the seasonally adjusted August nonfarm payroll print will be revised down as the BLS extends its seasonal adjustment procedure forward to incorporate the September data," said Marc Giannoni, chief US economist at Barclays. "The seasonal adjustment significantly exaggerated that month's employment gain. Had the August nonfarm payroll employment been adjusted with the August 2025 seasonal factors, it would have registered a drop of 74,000 jobs."

Economists said there were no signs yet that the US-Israel war with Iran was disrupting the labor market. But they expected the growing headwinds from the conflict in the Middle East, including high energy prices and strained supply chains, to start having an impact by the end of this year.

Diesel prices are at record highs and could start to exert pressure beyond the transportation and agricultural sectors. Ongoing tariffs also are a source of concern, with an Institute for Supply Management survey on Thursday showing rising anxiety among manufacturers over the trade war with Canada.

Robust corporate profit growth and resilient domestic demand are for now shielding workers from layoffs. Historically low layoffs account for labor market stability, with hiring at a modest level.

"There's just too many negative things playing out in terms of problems with fuel prices, uncertainty over the political outlook and trade policies," said Brian Bethune, an economics professor at Boston College. "I wouldn't be surprised if employment hits the wall next month."

AI INVESTMENT SUPPORTING MANUFACTURING, CONSTRUCTION

Economists expected a moderation in employment growth in the leisure and hospitality industry as well as local government education after large gains in August. Another month of strong increases is forecast for construction payrolls, partly driven by the building of data centers to support AI technology.

A fourth straight month of double-digit employment gains is expected for the manufacturing sector, also in part related to the infrastructure buildout for artificial intelligence.

Economists also said it was unclear when the termination of Temporary Protected Status for hundreds of thousands of Haitian immigrants would show up in the data.

"Our base case is that this will likely play out gradually over a period of months as a mild headwind to payroll growth rather than as a one-time shock," said Shruti Mishra, an economist at Bank of America Securities. "The impact should be cushioned by alternative legal status for some workers, gradual employer adjustment, and persistent labor shortages in several affected sectors."

Together with worker retirements, the Trump administration's immigration crackdown, which also includes deportations, has reduced labor supply, helping to keep a lid on the unemployment rate. The economy needs to create between 50,000 and 80,000 jobs per month to keep up with growth in the working-age population, economists estimated.

Economists said a low jobless rate should not be mistaken for a tight labor market, adding that the focus should be on wage growth. Wages are forecast to have increased 3.2% on a year-over-year basis in September after rising 3.1% in August, indicating that the labor market is not a source of inflation.

The US central bank last month raised its benchmark overnight interest rate by 25 basis points to the 3.75%-4.00% range, the first hike in three years, and flagged further increases in borrowing costs ahead. The odds of another rate hike this month were diminished by cooler-than-expected inflation readings for August and July.

Financial markets are pricing in a roughly 28% chance of further monetary policy tightening at the US central bank's October 27-28 meeting, down from about 69% a week ago, CME Group's FedWatch tool showed.

"An unemployment rate that falls because of lower participation due to demographic forces is not necessarily a tightening labor market that is generating upward pressure on wages," said Veronica Clark, an economist at Citigroup.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

((Lucia.Mutikani@thomsonreuters.com))