Investing.com -- The Federal Reserve may need to implement more aggressive rate cuts as recent data reveals a concerning trend in the labor market, according to Citi analysts in a note Wednesday.
The bank said the percentage of individuals finding "jobs hard to get" is increasing, signaling that the rise in unemployment is not merely a sign of a growing labor supply but an indication of weak hiring conditions.
Citi notes that this trend, observed in the Conference Board survey, is reminiscent of the conditions in September 2001, a period when the U.S. economy was already in recession.
The rising difficulty in finding employment "confirms that the rise in the unemployment rate is not good news about labor supply" but rather a reflection of a softening job market.
This situation suggests that a “hard landing” could be imminent, making further aggressive rate cuts from the Fed more likely, says the bank.
They explain that the data underscores the broader trend of weakening labor demand.
Citi forecasts a modest addition of 70,000 new jobs in the upcoming payrolls report for September, down from earlier robust figures.
"We have been surprised that job growth has not slowed more in sectors where activity has pulled back substantially, like construction, leisure/hospitality, and government," wrote the bank.
If this trend continues, Citi anticipates an increase in the unemployment rate to around 4.3%, with risks pushing it potentially to 4.4% if the labor force participation rate does not decline as expected.
"We continue to expect a 50bp rate cut in November with risks asymmetrically skewed to more dovish policy (more 50bp rate cuts or a 75bp rate cut)," adds the bank.