Experts: Weak October Jobs Report a Major Signal to Fed

A significant sign of a U.S. economic slowdown finally popped up in a monthly jobs report. October’s nonfarm payrolls data roundly came up short of expectations—a potential signal that the Fed’s interest-rate-hiking work might finally be done. The Labor Department reported Friday that nonfarm payrolls grew by 150,000 in October, well below economist expectations for 180,000. Here’s a quick look at the most pertinent details, all of which point to a cooling labor market:

• October payrolls: +150,000 (vs. +180,000 est.)
• October unemployment: 3.9% (vs. 3.8% est.)
• October hourly earnings: +0.2% (vs. +0.3% est.)
• September payrolls (revised): +297,000 (vs. +336,000 previously)
• August payrolls (revised): +165,000 (vs. +227,000 previously)

“After years of incredible strength, the labor market could finally be slowing,” says David Russell, Global Head of Market Strategy at TradeStation. “The top-line miss, plus downward revisions and higher unemployment, deliver a strong message to Jerome Powell and the Fed.”

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October’s payrolls were somewhat affected by labor strikes by the United Auto Workers, which was responsible for 33,000 of the 35,000 jobs lost in the manufacturing sector. Other industry declines included 12,000 jobs in transportation and warehousing, as well as 9,000 jobs in information-related industries. Conversely, government jobs (+51,000) were the largest source of employment gains, followed by 23,000 for construction, and 19,000 each for social assistance and leisure/hospitality. Virtually across the board, experts viewed the latest numbers as a sign that the labor market is cooling off, and that the Fed’s efforts to chill inflation have taken root.

Expert Reactions to October’s Jobs Report

Sonu Varghese, Global Macro Strategist, Carson Group

“[October’s below-estimates report] shows that the economy is slowing from its prior red-hot pace, but that’s just normalization rather than anything recessionary. It does give the Fed more room to hold rates steady, and if the data continues along this trend, we could even see a potential rate cut by May-June 2024—especially if inflation continues to slow. We believe equity markets will also react positively to the slightly softer data, since it means the Fed is done.”

Stephen J. Rich, Chairman & CEO, Mutual of America Capital Management

“Despite slower job growth, and recent strikes by union workers across various industries disrupting the labor market, we expect the unemployment rate to remain low in the coming months. It’s also worth noting that the labor force participation rate remains below pre-Covid levels, and it could further pressure labor markets if people continue to come back into the labor force.

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“Despite the cooler jobs report and emerging cracks in the labor market, the unemployment rate is still near 50-year lows, and we would expect that the Fed will remain vigilant in its inflation-fighting strategy. With the potential for an additional rate hike in December and the likelihood that rates will be higher for longer during 2024, a soft landing that avoids a recession and continues to support the wage and employment gains that the middle class has made is becoming less likely.”

David Russell, Global Head of Market Strategy, TradeStation

“Further [quantitative] tightening is now highly unlikely, and rate cuts could be back on the table next year. Stock market bulls couldn’t be more pleased by today’s jobs report.”

Michelle Cluver, Portfolio Strategist, Global X

“This report is encouraging for fixed income investors as it reflects that the Fed has already done a lot to slow down the economy, and the labor market is showing signs of softening. Market expectations for further rate increases in December or January have decreased significantly. From an equity market perspective, this reading takes some of the pressure off inflation and interest rate concerns, while still reflecting a robust labor market that is adding jobs faster than the neutral rate of approximately 100K.

Alexandra Wilson-Elizondo, Deputy Chief Investment Officer of Multi-Asset Solutions, Goldman Sachs Asset Management

“Today’s softer-than-expected payroll print, specifically the combination of the rising unemployment rate and a downward revision of last month’s hot figure, should validate the view that the hiking cycle is over. We believe the recession is delayed for now as fiscal policy continues to do the heavy lifting. The spot economy is strong with data, such as today’s number, suggesting the probabilities of a soft landing have increased, but equally has the ‘left tail’ given still high costs of funding, tightening financial conditions and the risks to financial stability. “We maintain the view to push against the ‘glass half empty’ response to earnings season as sentiment, Fed calls, and year-end seasonals should provide support to the market. That said, we have preferred relative value views over directional, favoring the broad index over high [capital expenditures] and leverage sectors like real estate investment trusts and utilities.

Jason Pride, Chief of Investment Strategy & Research, Glenmede

“Average hourly earnings grew 0.2% month-over-month, below consensus expectations. This was a decrease from last month’s print and within a range that the Fed would likely find more palatable if it were to continue. … The Fed likely is pleased to see the incremental cooling in the labor market, which on the margin should raise the odds of the Fed remaining on hold with rate hikes through year-end.”

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