CITIC SEC: Unemployment Rate May Take a More Favorable Position, Expect Fed to Cut Interest Rates by 25 Basis Points in December

CITIC SEC released a research report stating that in September 2025, the United States saw an unexpected increase in non-farm payroll employment and unemployment rate. The two core indicators showed a divergence, with the unemployment rate being a relatively "more concrete" data and the addition of new jobs being a relatively "more abstract" data. The bank believes that for the decision of whether the Federal Reserve will cut interest rates in December, the unemployment rate is more important. Rounded to two decimal places, the unemployment rate in September rose to 4.44%, marking a third consecutive monthly increase. It would be difficult for the Federal Reserve to argue that the unemployment rate in October and November did not rise to 4.5% or higher during the December monetary policy meeting. Furthermore, the September non-farm report is not the final data on the U.S. job market before the December policy meeting. The weakness in the job market will continue to be reflected in subsequent economic data, and with a majority of dovish voters among the 12 voters in December, the bank maintains its previous view that December might witness a "close call" interest rate cut of 25bps. The main points from CITIC SEC are as follows: Key Points: In September 2025, the United States added 119,000 non-farm payroll jobs (expected 51,000, revised previous value -0.4,000); the unemployment rate was 4.4% (expected 4.3%, previous value 4.3%); wage growth year-on-year was 3.8% (expected 3.7%, revised previous value 3.8%), while month-on-month wage growth was 0.2% (expected 0.3%, previous value 0.4%); labor force participation rate was 62.4% (expected 62.3%, previous value 62.3%). The addition of non-farm payroll jobs in September 2025 exceeded market expectations significantly, with the education and healthcare services and hotel and leisure industries within the private sector contributing the most. The private sector added 97,000 jobs in September, exceeding the expected 65,000 jobs and the revised previous value of 18,000 jobs. Breaking it down by industries, the goods-producing sector added 10,000 jobs, with the manufacturing industry decreasing by 6,000 jobs (durable goods decrease by 4,000 jobs, non-durable goods decrease by 2,000 jobs). The service industry added 87,000 jobs, with the education and healthcare services adding 59,000 jobs (the medical care and social assistance services sub-items added 57,100 jobs), and the hotel and leisure industry adding 47,000 jobs, both being the main contributors in the private service industry. The government sector added 22,000 jobs. The overall employment diffusion index in the private sector in September was 55.6, with the employment diffusion index in the manufacturing industry at 52.8. The two core indicators showed a divergence, with the unemployment rate being a relatively "more concrete" data and the addition of new jobs being a relatively "more abstract" data. The bank believes that for determining whether the Federal Reserve will cut interest rates in December, the unemployment rate is more important. Rounded to two decimal places, the unemployment rate in September rose to 4.44%, marking a third consecutive monthly increase. It would be difficult for the Federal Reserve to argue that the unemployment rate in October and November did not rise to 4.5% or higher during the December monetary policy meeting. By observing Powell's statements during the September and October monetary policy meetings, it can be seen that the unemployment rate is the most core indicator for the Federal Reserve in evaluating the job market, representing the level of full employment. An increase in the unemployment rate suggests a weakened demand relative to supply. Rounded to two decimal places, the unemployment rate in September was 4.44% which is close to 4.5%, the level where the Fed may decide to act. In the September Summary of Economic Projections (SEP), the forecasted unemployment rate for the year was 4.5%, corresponding to a total of three interest rate cuts within the year as per the September dot plot. With the unemployment rate in September rising to 4.44% and showing continuous increase for three months, the Federal Reserve may find it hard to argue that the unemployment rate in October and November did not rise to 4.5% or higher. Additionally, the unexpected increase in new jobs in September was mainly driven by a few industries, and downward revisions in non-farm payroll data have been common. From January 2024 to August 2025, the average downward revision in the final non-farm payroll employment figures relative to the initial values was 54,600 jobs. Taking this revision into account, the September data did not significantly exceed market expectations. Between the divergent data, the unemployment rate is a relatively "more concrete" data, while the addition of new jobs may undergo further revisions and is a relatively "more abstract" data. The bank believes that for determining whether the Federal Reserve will cut interest rates in December, the unemployment rate is more important. The September non-farm report is not the final data on the U.S. job market before the December policy meeting. The weakness in the job market will continue to be reflected in subsequent economic data, and with a majority of dovish voters among the 12 voters in December, the bank maintains its previous view that December might witness a "close call" interest rate cut of 25bps. On one hand, the September non-farm report is not the final data on the U.S. job market before the December policy meeting. Non-farm data for October and November are expected to be released after the December policy meeting on December 16. However, on November 26, the Federal Reserve will receive a new Beige Book, and on December 1 and 3, they will respectively release the ISM Manufacturing PMI and Service PMI (including employment sub-items). On December 9, the JOLTS data for September and October will be released (the bank expects the Federal Reserve to consider this data on the first day of the December policy meeting). Additionally, ADP and initial jobless claims data will also provide additional information. On the other hand, there has been no clear change in the hawkish-dovish balance of voters for the December policy meeting. After Powell mentioned that the December interest rate cut was not a certainty at the October policy meeting, market expectations for a rate cut decreased. Recent hawkish comments from some Fed officials and the slightly hawkish tone of the October meeting minutes further intensified market uncertainty. Prior to the release of the September non-farm data, the CME FedWatch showed that the probability of a December rate cut was less than 30%. After the data was released, the probability of a rate cut in December returned to over 40%. Regarding comments from Federal Reserve officials, the bank recommends focusing on the statements of moderately dovish members such as Powell, Williams, Cook, Bullard, Jefferson, and Collins (Mossalem, Schmidt, and Goolsbee are significantly hawkish, while Bowman, Waller, and Milan are noticeably dovish). Currently, among the 12 voters for the December policy meeting, dovish members still hold an advantage. The bank maintains its previous view that December might witness a "close call" interest rate cut of 25bps. Risk Factors: Stronger-than-expected U.S. job market; higher-than-expected U.S. inflation rebound; Trump's policies exceeding expectations; Federal Reserve more hawkish than expected.