Cooling U.S. September Payrolls Weaken October Rate-Hike Expectations; OPEC+ Capacity Review Delayed to Mid-November

The U.S. Bureau of Labor Statistics reported Friday that September nonfarm payrolls rose by only 29,000, far below market expectations of about 90,000; August job gains were revised down from 162,000 to 133,000, while July was revised from an increase of 21,000 to a decline of 10,000, with the two months combined revised down by 60,000; the September unemployment rate rose to 4.2%, rather than holding at August’s 4.1% as expected; average hourly earnings rose 0.1% month over month and 3.0% year over year in September, both slowing from August, versus expectations for the same 0.3% and 3.1% gains as in August. After the report, Treasury yields fell notably at one point, U.S. stocks rose, and the rates market quickly reduced bets on a Fed rate hike this month; traders put the probability of a Fed October hike at about 20%, down from nearly 30% previously. ^[1]

Nick Timiraos, a journalist known as the “New FedWire,” commented that Fed officials had already actively signaled this week that an October hike might not be their base-case scenario, and the report did not change this established Fed stance; most notably, neither wages nor the unemployment rate showed the labor market re-tightening enough to significantly increase price pressure. Timiraos believes the September U.S. CPI due on October 14 will be more important, but the jobs report “did to some extent soften the hawkish tone brought by the market’s recent adjustments to expectations for the Fed’s rate-hike path.” ^[1]

Jefferies chief U.S. economist Tom Simons said the jobs report “should completely end” the case for an October hike; Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management, said the cooling in the September employment report made a hike later this month unlikely; Natixis chief U.S. economist Christopher Hodge argued that while the September employment data were disappointing, they looked more like a continuation of an existing trend than a sudden deterioration in the labor market. BLS data show nonfarm payrolls rose by an average of about 51,000 per month over the past three months and about 41,000 per month over the past year; the unemployment rate rose to 4.2% but remained within this year’s narrow 4.1%–4.3% range. ^[1]

The U.S. Census Bureau reported Friday that August factory orders rose 0.1% month over month, in line with market expectations, and were up 6.8% year over year; the July monthly increase was revised down to 0.8% from a previously reported 0.9%. In August, orders for civilian aircraft and parts fell 4.3%, weighing on the overall figure; orders for motor vehicle bodies, parts and trailers rose 0.8%, machinery orders jumped 1.1%, computers and electronic products orders were flat month over month and up 14.7% year over year, and electrical equipment, appliances and components orders jumped 1.1%. August orders for nondefense capital goods excluding aircraft rose 1.6% month over month, in line with the previous month’s release; shipments rose 0.5% month over month in August, below the previously estimated 0.6%. ^[2]

AI infrastructure is supporting manufacturing, and businesses restocking inventories to meet strong domestic demand are also providing support. However, as the U.S.-Israeli war against Iran disrupts supply chains and pushes energy prices higher, markets worry that manufacturing sectors unrelated to the AI spending boom could face greater pressure in the coming months; diesel prices have risen to historic highs, ongoing import tariffs also pose downside risks, and ISM surveys show U.S. manufacturers’ concerns about the impact of the trade war with Canada are rising. ^[2]

Reuters, citing two people familiar with the matter, reported that the deadline for completing OPEC+’s capacity review has been postponed from the original end of September 2026 to mid-November, because the U.S.-Israeli war against Iran has disrupted multiple capacity expansion projects in the Middle East, throwing estimates of member countries’ future production potential into uncertainty; DeGolyer and MacNaughton, responsible for estimating capacity for OPEC+ members excluding Russia, Iran and Venezuela, is expected to submit its report to OPEC only in mid-November. The delay will directly affect the alliance’s process of setting 2027 oil production quotas, though in theory it still allows OPEC+ to discuss the findings at its late-November full meeting. ^[3]

The report said the independent capacity assessment results will directly determine each member’s permitted production ceiling, some members have already had clear disagreements over quotas, and the alliance’s stability is under pressure; the UAE had long asked OPEC+ to raise its production quota on the grounds of increased capacity, and after its demand was not fully met, it left the alliance in May this year; Iraq is also seeking a higher quota and has considered leaving OPEC. On Friday, the G7 decided to release 100 million barrels of emergency oil reserves, with large volumes of diesel to be released first over the first 20 days; U.S. crude at one point fell more than 5%, then rebounded somewhat, and was down 3.33% as of publication. ^[3]