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The October Employment Situation report came out last week and new nonfarm payrolls had a very low increase of just 12,000 jobs, far below the 223,000 jobs created in September. According to economists at Wells Fargo, the ongoing strikes, particularly at Boeing, directly reduced payrolls by approximately 40,000. As a result, employment in the transportation equipment sector declined by 44,000, with minor spillover effects from associated furloughs. They expect this impact should largely reverse when the strikes are resolved.
The hurricanes—Helene and Milton—added further complications. Milton, which made landfall during the survey week, disrupted work significantly. The household survey reported that 512,000 employed individuals were unable to work due to weather conditions, a figure nearly 10 times the October norm. Although this statistic doesn’t directly alter the establishment survey's count of paid employees, it underscores the significant disruptions caused by these storms. Workers who missed the entire pay period that overlapped with the survey week were excluded from payroll figures. Industries with high concentrations of weekly-paid employees, such as construction, were particularly affected. Construction hiring slowed sharply, and employment in trade, transportation, and leisure & hospitality sectors saw outright declines.
The softness extended beyond these industries. Professional and business services employment dropped by 47,000, while sectors such as information (+3,000), financial activities (+0), and other services (+1,000) remained essentially flat. Hiring gains were primarily driven by healthcare and social assistance (+51,000) and government (+40,000).
In other areas of the report, the unemployment rate remained unchanged at 4.1% and was right in line with expectations. In addition, the labor participation rate ticked down slightly to 62.6%
This week the FOMC will be holding their November meeting. The expectations are for a more modest cut compared to the September meeting as the CME FedWatch is predicting a 98% probability of a 25 bp cut.
With employment being the current focus of the Fed, the question is whether the latest report of such low payrolls added could drive the Fed to go for another large cut over this meeting. We think that given the results were impacted from temporary factors, it is more likely that this will just be more incentive for them not to pause in November and that they will continue with the expected 25 bp cut.