Author: Dong Jing, Wall Street News
The U.S. non-farm payrolls report for September will be released on Friday (October 2). This is the last employment data before the Federal Reserve's interest rate meeting on October 28. The market's pricing of its influence has dropped to recent lows - and historical experience shows that when the market cares the least, it is often when data can stir the market the most.
Wall Street's median forecast was for 90,000 new jobs, down sharply from August's 162,000. The market is highly concerned about whether the August data will be significantly revised down, as abnormal seasonal adjustments have significantly exaggerated the overall employment performance, which makes the September data face great uncertainty about the base effect.
At the same time, the Fed's policy expectations have undergone a sharp shift in the past week: on Monday, the market priced in an October interest rate hike at about 70%. However, after New York Fed President Williams stated that he was "in no rush to raise interest rates" and the August core PCE fell moderately, by Thursday's close, the probability of an October interest rate hike had dropped to about 25%, and Goldman Sachs postponed the next rate hike expectation to December.
Seasonal adjustments are the biggest source of uncertainty in this report. Barclays estimates that if the August data is re-adjusted based on this year's seasonal factors, the "dazzling" increase of 162,000 will turn into a decrease of 74,000, which means that the August data is seriously overestimated. In this context, whether the August data is revised downward will directly determine the interpretation direction of the September data.
For the market, the real risk may not be on the front end of interest rates, but on the long-term bonds. Goldman Sachs data shows that the CTA Trend Strategy Fund currently holds approximately US$390 billion in global bond short positions. The short position in the 10-year U.S. Treasury bond is at 99% of its historical maximum, and the 30-year Treasury bond short position has reached 100%. Once the non-agricultural data is weak or the unemployment rate rises to 4.2%, large-scale short covering by systemic funds may trigger violent fluctuations in the bond market.
Expected numbers: low consensus, significant disagreement
The forecast ranges of 80 Wall Street institutions range from Barclays' +50,000 to Nomura's +130,000. Almost all institutions' forecasts are lower than the August reading, and most are lower than the consensus.
The core expected data are as follows:
Non-agricultural employment: +90,000 (previous value +162,000); 3-month average 71,000, 6-month average 107,000, 12-month average 50,000
Private employment: +81,000 (previous value +127,000)
Unemployment rate: 4.1% (previous value: 4.14%, not rounded)
Labor force participation rate: 61.6% (same as previous value)
Average hourly wage: +0.3% month-on-month, +3.2% year-on-year (previous value +3.1%)
Average working hours: 34.3 hours (previous value: 34.4 hours)
Goldman Sachs expects +80,000 new jobs, slightly lower than consensus but higher than the three-month average, and lowers its unemployment rate forecast to 4.0%, citing a decline in continued unemployment claims. Goldman Sachs also expects average hourly earnings to only +0.2% sequentially, citing "unfavorable calendar effects" as an explanation.
Nomura ranked the highest on Wall Street with +130,000, on the grounds that August is historically the month in which initial values are most likely to be revised upwards.
Unemployment rate and wages: Details determine market reaction
The unemployment rate forecast range is 4.0% to 4.2%, with the source of the disagreement being the unrounded 4.14% in August.
Goldman Sachs and Nomura expected 4.0%, based on continued declines in claims;
Wolfe Research expected 4.17%, which rounded to 4.2%;
Bank of America expected 4.1%, but warned that there is a risk of a correction after the August household employment survey surged by 569,000, which may push the unemployment rate to 4.2%; and added that "even 4.2% is consistent with healthy labor market fundamentals";
Deutsche Bank warned that a slight increase in the labor force participation rate could lead to the unemployment rate being rounded to 4.2%.
In terms of wages, Goldman Sachs and Nomura both expected +0.2% month-on-month, while Deutsche Bank was higher than consensus, expecting +0.4%. Goldman Sachs' broader payroll tracker showed +3.5% year over year and +3.1% annualized in the third quarter. Wolfe Research noted that wage growth remains "below the Fed's preferred range of 3.5% to 4.0%," calling it "surprisingly tame."
Seasonal adjustment: August is "puffy" and there are two-way risks in September
The seasonal factor is the core difficulty in interpreting this report.
Wolfe Research noted that in a typical August, seasonal adjustments typically push the seasonally adjusted number down by more than 100,000. But in August this year, seasonal factors pushed the data higher instead - the first time this has happened since 2021.
Bank of America economist Shruti Mishra gave the clearest explanation:
The non-seasonally adjusted employment growth in August was actually lower than the same period last year, but this year's seasonal adjustment is "close to zero", and the adjustment range in August 2025 is -178,000, resulting in almost all of this year's non-seasonally adjusted growth flowing into the seasonally adjusted figures.
Bank of America attributed this anomaly to the difference in survey cycles - August 2026 has a four-week survey range, while 2024 and 2025 both have a five-week survey range.
Barclay's conclusion forms a clear logical chain:
If the August data is revised downward → the September data may be unexpectedly strong; if the August data is not revised downward → the September data may be weak.
Bank of America advised investors "not to be fooled by headline numbers" and kept its estimate of potential job growth at a healthy level of "100,000+."
In addition, Bank of America also warned of a potential downside risk: About 200,000 Haitian TPS holders lost their work authorization on July 27, mainly in the catering, medical, transportation and retail industries. Bank of America's base case is a gradual drag, but admitted that "the impact on September data may be larger than expected."
High-frequency labor market indicators: overall positive, consumer confidence is an outlier
A number of high-frequency indicators show that the labor market remains resilient:
Initial jobless claims: 198,000 in the survey reference week, down from 207,000 in the August survey window; continuing claims fell to 1.719 million, the lowest since March 2023, supporting the forecast for the unemployment rate to fall to 4.0%
ADP: Private employment +90,000 (70,000 expected, 36,000 previous), accelerating for the first time since May, led by education/health and leisure/hospitality
Revelio: +56,900 in September, higher than the upwardly revised +40,600 in August, led by public administration, medical and construction industries
Challenger layoffs: 43,000 layoffs announced in September, the lowest since 2022, but hiring plans are the lowest since the same period in 2011
PMI: S&P Global Flash PMI shows employment growth at the fastest pace since June 2022; ISM manufacturing employment sub-item rose to 52.7
The only reverse signal came from consumer confidence surveys. In the Conference Board survey, the difference between "employment is abundant" and "employment is hard to find" narrowed to only +1.7, and the net six-month employment expectations fell to -14.4, suggesting that the job market perceived by consumers is still weakening.
Fed Policy: Path from "skipping" to "raising rates"
After raising rates for the first time in three years, the median Fed dot plot points to another rate hike in 2026. The market once priced it in October, but then quickly retreated.
The current market consensus has shifted to "skipping interest rate hikes in October and December." Goldman Sachs economists believe that since core PCE is expected to fall to 3.0% by the end of the year (lower than the Fed's forecast of 3.4%), "it is quite possible that the FOMC will ultimately conclude that no further interest rate increases are needed."
Barclays also expects a pause in October and a rate hike in December. Deutsche Bank's baseline scenario calls for one rate hike in December and one in March next year.
Bank of America quoted Warsh's recent statement on the resilience of the labor market, believing that this employment report is "unlikely to be a game changer in the pricing of interest rate hikes in October, and the market will pay more attention to CPI data."
Bond shorts are biggest potential tipping point
The options market has significantly compressed pricing for this report. According to the Goldman Sachs derivatives team, the implied volatility of the S&P 500 straddle option fell from 1.18% on Monday to about 67-70bp on Thursday, which is lower than the average of 72bp over the past eight trading days. The Nasdaq 100 straddle is around 95bp.
In the foreign exchange market, the implied fluctuations of the US dollar against the Japanese yen are about 42bp, and the euro against the US dollar is about 38bp, both of which are close to the upper edge of the one-year realized volatility range - foreign exchange is currently the only market that is still paying for unexpected pricing.
Rich Privorotsky of Goldman Sachs pointed out that the real pressure is on the long end rather than the short end:
"Rates: There's absolutely no buying on the long end. The PCE data was soft but did little to change the trend on the long end...The real problem is the long end just doesn't care."
This makes position risk the most noteworthy variable. Brian Garrett of Goldman Sachs said that the bank's CTA model shows that systemic funds hold approximately US$390 billion in global bond short positions. The short position of the 10-year US Treasury bond is at 99% of the historical maximum, and the 30-year bond has reached 100%.
If the data performs "just right" (new increase of 40,000 to 100,000, unemployment rate 4.0%-4.1%), the stock and bond markets will rise moderately;
If the data is "overheated" (more than 120,000 new jobs and the unemployment rate is 4.0%), expectations of an interest rate hike in October will quickly return to the market;
If the data is "too cold" (new growth is less than 20,000 or the unemployment rate rises above 4.2%), not only will interest rate hike expectations be completely wiped out, but it will also trigger a comprehensive short squeeze on CTA bond shorts.
For stocks, Goldman Sachs' Nelson Armbrust pointed out that the S&P 500 is only about 2% away from its all-time high, and "any degree of relief in interest rates will be a trigger for rising stocks." JPMorgan Chase's Andrew Tyler warned of mirror risks: ADP data is strong, non-farm payrolls may have an upward surprise, and the market may return to the "good news is bad news" logic.
It's worth noting that the magnitude of the revision to August's data may have more market impact than the September headline number itself. If the August data is revised significantly downward, it will confirm that seasonal adjustment distorts the real employment trend, thereby reshaping the market's judgment on the entire employment cycle.
The market is highly concerned about whether the August data will be significantly revised down, as abnormal seasonal adjustments have significantly exaggerated the overall employment performance, which makes the September data face great uncertainty about the base effect.