The U.S. economy experienced a significant slowdown in October, adding only 12,000 jobs, far below the anticipated 113,000. This marked the lowest monthly pace since December 2020, sparking concerns among economists about the health of the labor market.
While the weak hiring numbers can be attributed to the impact of hurricanes across the Southeast and the Boeing workers’ strike, economists are divided on whether this reflects a broader deterioration in the labor market. Jeffrey Roach, chief economist for LPL Financial, believes the hurricanes likely affected the establishment survey, suggesting a possible distortion in the data. He also noted that response rates for the household survey were within normal ranges, indicating a more reliable picture of the employment situation.
Roach highlighted the household survey data, which showed long-term unemployment rising to 22% of total unemployed persons. Furthermore, the number of permanent job losers increased to 1.8 million in October, compared to 1.2 million in February 2020. Based on these observations, Roach expects the Federal Reserve to cut interest rates at its next two meetings as economic conditions appear to be weakening.
Quincy Krosby, chief global strategist for LPL Financial, echoed the need for careful analysis of the employment report. She believes the Federal Reserve will have to consider whether the weak numbers are solely due to the hurricanes and Boeing strike or indicative of a broader trend in the labor market.
Bill Adams, chief economist for Comerica Bank, acknowledged the impact of the hurricanes on the jobs report but anticipates a quick rebound as recovery efforts are underway. However, he cautioned that downward revisions to August and September data suggest the job market was cooler than previously thought. Adams anticipates the Fed to cut interest rates by a quarter percent at its upcoming post-election meeting.
Joseph Brusuelas, chief economist for RSM, sees the hiring slowdown as a transition from the “turbocharged” pace following the pandemic to a more sustainable level, reflecting an economy operating at full-employment. Brusuelas believes that after accounting for the “noise” caused by hurricanes and the strike, the actual hiring pace is closer to 120,000 jobs per month. He expects the Fed to disregard the “noisy topline” data and cut its federal funds policy rate by twenty-five basis points at the upcoming meeting.
Despite the concerning employment figures, the unemployment rate remained steady at 4.1%. The general consensus among economists is that the hurricanes and Boeing strike significantly impacted the October jobs report. Most anticipate the Federal Reserve to look past the distorted October hiring number and reduce interest rates by 0.25% at its next meeting.
Markets are reacting positively to the expectation of rate cuts, with the SPDR S&P 500 ETF Trust SPY rising 1.14% at the time of publication, recovering from a 1.9% decline on Thursday.
While the October jobs report paints a mixed picture of the U.S. economy, the anticipation of rate cuts and the potential for a rebound in employment following the hurricanes and Boeing strike offer some reassurance for the future.
