Jobs Report Sends Mixed Signals, But Another Rate Cut Is Still Very Likely

  • In an unusual labor market report, the unemployment rate stayed steady while payroll figures took a nosedive in October, which is explained by estimation differences.
  • With temporary reasons affecting payroll figures, though, a big rate cut from the Fed is unlikely, although there's still good reason for one.
  • With a fairly strong macro-picture in place right now, investors might stand to gain from making some braver, though still careful, choices.

David Ryder/Getty Images News

The October jobs report released earlier today reflected mixed signals, with the unemployment rate remaining unchanged on the one hand and a dramatic drop in non-farm payroll increases on the other. Factors like Boeing's (BA

Labor market gives mixed signals

  • The unemployment rate remained unchanged from the previous month at 4.1%, in line with expectations. The number is also the modal value for 2024 so far now, with the rate being observed in three of the past 10 months. The mean unemployment rate is a bit lower at 4%, however.
  • Non-farm payroll increases were at just 12,000, however, a sharp decline, which makes it the worst reading since April 2020, when the figures contracted due to the onset of the pandemic and the subsequent lockdowns. The latest numbers are also a dramatic drop from the initial estimates of 254,000 gains in September and a 93.8% drop from the average monthly gains of 194,000 over the past year.
  • Downward revision in earlier non-farm payroll gains was also observed. The August number was revised downwards by 81,000 to 78,000, while the September figure is now down by 31,000 to 223,000. Note that these figures were below the monthly average gains over the past year even earlier, now they are even more so.
  • Average hourly earnings grew 0.4% MoM in October, same as the initial estimate for September. The figure for September was also revised upwards to 0.5%. Interestingly, growth remained slightly higher than the forecast of 0.3%, much like last month.

Key Labor Data\ (Source: Bureau of Labor Statistics)

Why are payrolls weak and not unemployment numbers?

Implications for the FOMC rate decision

  • Boeing workers could be close to a deal with the company's management, which will relieve some of the pressure on upcoming payroll figures anyway.
  • While long-term employment losses from hurricanes can affect labor market data over time, reconstruction work can play its part in creating some balance. It's estimated that some 1.4 million jobs will be created as a result of the recent hurricanes, which is just shy of 1% of the total employed workforce.
  • With the first of the unemployment rate figures for Q4 2024 now released, the figure would have to average at 4.55% in the next two months to come in at the Fed's forecast rate of 4.4%. This appears unlikely, as the economy is in a robust place. The advance estimates for Q3 2024 GDP growth show an above-trend 2.8% growth.

Where to invest

Source: Seeking Alpha

In conclusion

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