October jobs report misses expectations; Will it impact the elections and Fed?

The October jobs report presented a significant miss relative to expectations, showing a gain of only 12,000 nonfarm payrolls compared to a consensus forecast of 113,000. This marked the lowest job creation pace since December 2020, impacted by factors including hurricanes and ongoing labor strikes. Private sector jobs fell by 28,000, contrasting with the anticipated 90,000 gain, while factory employment dropped by 46,000, well below the projected decline of 28,000. Despite these figures, the unemployment rate held steady at 4.1%, signaling a mixed picture for labor market strength.

The question is will this impact the elections or Fed? The short answer is No. Markets were prepared for a "messy" number as the impact from Hurricane Helene and Boeing's machinist strike impacted results. It is unlikely that any undecided voter was waiting for this figure before heading to the booth. Fed Funds Futures point to a 91% chance the Fed will cut rates 25 basis points at next week's meeting and this figure has had a minimal impact due to the noise.

Healthcare and government sectors continued to add jobs, with health care contributing 52,000 and government employment increasing by 40,000. These gains somewhat offset the decline in manufacturing and temporary help services, which saw a steep decrease of 49,000 jobs. Strikes in transportation equipment manufacturing contributed significantly to the loss in factory jobs, highlighting the transitory nature of some of these declines. Nonetheless, the upward trends in healthcare and government align with prior monthly averages, underscoring areas of continued demand in the public and health sectors.

Revisions to previous months' data further emphasized the softer trend. The August payrolls number was revised downward by 81,000 to 78,000, and September's was adjusted down by 31,000 to 223,000, making the cumulative revisions for these months 112,000 lower than initially reported. Economists interpret these revisions as an indication of underlying cooling in the labor market, suggesting that demand for labor may be softening, even outside of recent disruptions from weather and strikes.

Average hourly earnings rose by 0.4% month-over-month, in line with consensus expectations, bringing the year-over-year increase to 4.0%. The average workweek remained at 34.3 hours, consistent with expectations, while labor force participation held steady at 62.6%. Economists view stable earnings and work hours as supportive signs of labor market resilience, even if headline job growth slowed. However, the persistent moderation in wage growth could ease inflationary pressures, adding a possible factor for the Federal Reserve to consider in its rate policy.

Economists and market strategists offered cautious interpretations of the report. Seema Shah of Principal Asset Management noted that while hurricanes skewed the data, the underlying labor market appears to be fundamentally cooling. This cooling trend, she argues, should reinforce the Fed’s current rate path without necessitating an immediate policy shift. Similarly, Sonu Varghese of Carson Group suggested that payroll growth may rebound in November, making it necessary to average October and November to assess true labor market strength.

The weak report also brought into focus the Fed's upcoming meeting, with many analysts expecting the central bank to take a measured approach. Cory Stahle of Indeed Hiring Lab suggested that the report alone is unlikely to drive a change in rate policy but could support further rate cuts should future reports also show limited job growth and downward revisions. Goldman Sachs' Lindsay Rosner echoed this sentiment, pointing out that although the Fed may attribute some of the weakness to temporary factors, the broader softness might support an easing stance.

Market reactions reflected a cautious optimism, as investors largely shrugged off the weak jobs data, with equity markets rising on Friday. Analysts noted that investors may be interpreting the report as a sign that the Fed’s rate hike cycle is nearing its end, especially if labor market demand continues to cool. The market’s resilience suggests that, despite the weak October numbers, expectations for a soft landing remain intact, provided subsequent data shows a rebound or stabilization in employment gains.

Overall, the October jobs report suggests a slowing labor market amid unusual factors, leaving economists divided on its longer-term implications. While temporary disruptions cloud the interpretation, ongoing moderation in job growth could pave the way for the Fed to consider a more dovish stance, especially if November data confirms a trend. However, the central bank is likely to proceed cautiously, balancing these signals with inflationary pressures and broader economic conditions heading into the next meeting.