October Jobs Report Forecasts Show a Sharp but Temporary Slowdown

Forecasts for the October jobs report predict a sharp slowdown in job growth, primarily attributed to the recent hurricanes and major strikes.

According to FactSet, economists predict the economy added 120,000 jobs in October, a steep drop from the 254,000 increase in September. Meanwhile, the unemployment rate is forecast to remain unchanged at 4.1%.

“A lot of Americans’ working lives were disrupted in October by two devastating hurricanes and two major strikes,” explains Bill Adams, chief economist at Comerica Bank.

The newly striking workers, including those at Boeing BA, will reduce October payroll growth by 41,000 jobs, according to the Bureau of Labor Statistics. The job losses due to the recent hurricanes are currently unknown but anticipated to be significant.

As a result, Adams says a slowdown in October jobs growth is expected and “will tell us next to nothing about the trend of the economy.” After taking these temporary shocks into account, he characterizes the overall labor market as healthy and expects to see their impact fade in later reports.

October Jobs Report Forecast Highlights

• Job report release date and time: Friday, Nov. 1, at 8:30 a.m. EDT
• Nonfarm payroll employment is forecast to rise 120,000 vs. the 254,000 increase in September, according to FactSet.
• The unemployment rate is forecast to remain unchanged at 4.1%.
• Hourly earnings are projected to rise 0.3% monthly from 0.4% in September.

Gregory Daco, chief economist at EY-Parthenon, forecasts job growth will come in at 70,000, below the consensus estimate. He expects losses in the manufacturing sector due to the strikes, and losses in the construction, mining, leisure, and hospitality sectors due to the hurricanes.

Daco believes the underlying pace of job growth is closer to 170,000 after factoring out the impact of the temporary labor market shocks. “What really matters is not whether the strikes or the hurricanes disrupted the labor market, but the underlying strength of the labor market in terms of payroll growth,” he explains.

Goldman Sachs analysts also anticipate a weaker report, predicting 95,000 jobs were added in October. Meanwhile, Adams predicts hiring gains will come in at 30,000, far below the consensus estimate. He believes most losses will come from hourly accommodation and food services workers.

Wage Growth Forecast To Show Jump

Adams and Daco predict October wage growth will come in above consensus at 0.5%, also due to labor market disruptions. “I would take any wage growth reading with a grain of salt, factoring in what happens to hours,” says Daco. He explains that if the number of hours worked falls due to those disruptions, the wage growth figure should also be adjusted downward to get a true picture of the underlying trends.

What Could the October Jobs Report Mean for the Fed?

In September, the Federal Reserve cut interest rates by 50 basis points, shifting attention from fighting inflation toward supporting the economy. With the Fed meeting next week, investors are eyeing the jobs report for clues about another potential cut.

“The Fed is unlikely to change course because of this report,” says Adams. “There would have to be something astonishingly unexpected to change their thinking.” He predicts the central will cut rates by 0.25% at next week’s meeting.

Daco also forecasts a quarter-point cut, but he cautions that some policymakers may use a weak October report to reinforce their support for more extreme cuts. “I generally do not view [Fed chair Jerome] Powell as part of that camp,” he says. “I anticipate he will still believe a gradual recalibration of the monetary policy level is in our best economic interest and will push the committee toward a 25-basis-point cut.”

Bond markets are pricing in a 95% chance of a 0.25% interest rate cut in November, according to the CME FedWatch Tool. That would bring the target federal funds rate down to a range of 4.50%-4.75%.