October US Nonfarm Payrolls Preview | Employment May Be Temporarily Disrupted Due to the Hurricane

October nonfarm payrolls report will be released at 8:30 a.m. ET this Friday. The median forecast of analysts for the upcoming nonfarm employment is 115K, downfrom 254K in August. The unemployment rate is expected to remain at 4.1%.

Although analysts might attribute the economic weakness to temporary weather conditions, cyclical factors are also significant contributors. The manufacturing sector, a key indicator of economic cycles (ISM, Friday), was already losing jobs before the hurricanes struck. That means the fundamental rate of job growth is insufficient to keep the unemployment rate steady in the future, even though the jobless rate may remain at 4.1% for now.

The most expensive presidential campaign in history, alongside emergency responses to storms, likely boosted government employment as reflected in the household survey. However, these effects are expected to start reversing in December.

The overall weak employment situation is reflected in the rapidly increasing number of unemployment benefit claims. As of mid-October, continuing jobless claims in the United States rose to 1,897,000. This is the highest level since mid-November 2021, up from 1,869,000 the previous week and significantly exceeding the forecast of 1,880,000.

▶ Job openings fell sharply, showing a cooling in employer demand

When firms see less turnover, they also have fewer job openings. JOLTs report on Wednesday shows that in September 2024, job openings dropped by 418,000 to 7.443 million, down from a revised 7.861 million in August and falling short of the anticipated 7.99 million. This marks the lowest level of job openings since January 2021, signaling a slowdown in the labor market.

The decline was particularly notable in health care and social assistance, which saw a reduction of 178,000 openings. Additionally, there were decreases in state and local government by 79,000 and in the federal government by 28,000. Conversely, the finance and insurance sector experienced an increase of 85,000 job openings.

▶ ADP private sector jobs increased by 233,000

According to the latest data released on Wednesday, in October 2024, private companies in the US saw an addition of 233,000 workers to their payrolls, unexpectedly marking the largest increase since July 2023. This figure came after September's totals were revised upwards to 159,000. The service-producing sector was responsible for 211,000 of these new jobs, with the largest gains seen in education and health services (53,000), trade, transportation, and utilities (51,000), and leisure and hospitality (37,000). The goods-producing sector contributed an additional 22,000 jobs, including 37,000 in construction and 4,000 in natural resources and mining, although manufacturing experienced a decline, losing 19,000 jobs.

Nela Richardson, chief economist at ADP, commented, "Even amid hurricane recovery, job growth was strong in October. As we round out the year, hiring in the U.S. is proving to be robust and broadly resilient." On another note, annual pay gains for job stayers have fallen to 4.6%, continuing a trend of slowdowns over the past two years.

▶ What's the implication for the Fed?

The FOMC meetings before and after the election will be particularly sensitive. In order to maintain a neutral policy stance, the Federal Reserve is unlikely to make significant changes to its policy. The CME FedWatch Tool shows that the probability of the Fed cutting rates in November is 96.1%. The probability of further rate cuts in December is 69.7%. If the upcoming non-farm payroll data weakens as expected, it will rationalize the rate cut decisions for the rest of the year.