Why one firm is skeptical about the blockbuster September jobs report — and is still expecting another jumbo rate cut

• September's big payroll jump will eventually be revised down, Pantheon Macroeconomics said.
• A low response rate to the report is a "red flag," the research firm said.
• The Fed will still deliver jumbo rate cuts to stabilize the weakening job market, the firm predicted.

Though most on Wall Street are cheering September's blowout labor report, not everyone is so sure the labor market is booming.

The estimate-beating increase in nonfarm payrolls shouldn't be taken at face value, according to Pantheon Macroeconomics. Instead, it believes the figures will likely be revised down.

The current reading shows that the US economy added 254,000 positions in September, roaring past consensus estimates of 147,000. The unemployment rate slid to 4.1%, despite projections that it would remain unchanged at 4.2%.

But Pantheon cited a caveat in this data: only 62% of businesses responded to the report in time, a sharp decrease from 68% one year ago, as well as September's 77% average in the 2010s.

"The extremely low response rate to the payroll survey waves a red flag," the firm wrote on Friday.

"We think that small businesses are disproportionately late responders and are cutting back on hiring more than large businesses. We are convinced, therefore, that September's print will be revised much lower over the coming months."

The firm scrutinized last month's payroll strength against the fact that other labor market indicators have shown a pullback in hiring. For instance, the hiring intentions index of the NFIB survey suggests private payrolls will grow by just 75,000 this winter.

Meanwhile, this week's JOLTS data prompted Deutsche Bank to question how tight the labor market really is. Hires remained little changed at 5.3 million, the Bureau of Labor Statistics said Tuesday.

Pantheon pointed out that labor market readings have almost always been revised lower as more data comes in. This was the case earlier this year, when the US economy was found to have added 818,000 fewer jobs than first reported from April 2023 through March 2024.

Pantheon suggested that September's unemployment rate drop may have been a sampling error. That's as other surveys, such as the Conference Board's consumer confidence survey, indicate a rise in joblessness over recent months.

Nonetheless, Wall Street has embraced Friday's report as a game changer, upending rate-cut outlooks. Odds that the Federal Reserve can cut rates by a half-point in November tanked following the jobs report , as there appears to be less urgency to prop up the labor market.

While many forecasters still see firm odds for a 25 basis point cut next month, some commentators have suggested the latest jobs report shows the Fed doesn't have to cut rates at all in November.

Bank of America analysts on Friday noted that the Fed may have panicked with its 50 basis point move in September, and former Treasury Secretary Larry Summers called the jumbo cut a " mistake ."

Pantheon disagrees, however.

"While today's report points strongly towards a 25bp easing at the next meeting rather than another 50bp, we continue to think that the Committee will ease in 50bp increments again soon and will take the target range below 3% next year, in a bid to stabilize the deteriorating labor market."