Weak Jobs Report – Fed Will Cut Rates Next Week

Last month, we were impressed with a very strong jobs report for September that called into question whether or not the labor market was really declining, as seemed to be the case in the summer.

Today’s jobs report for October suggests that the earlier view of a modest decline was correct, and that last month was the fluke.

Payrolls rose by only 12,000 last month. When one adjusts for the likely dampening effects of Hurricanes Helene and Milton as well as the Boeing Strike, payrolls would have risen about 100,000 – still quite weak by recent standards, though certainly not suggesting an imminent downturn.

On the payroll side, increases in health care (52,000) and government jobs (40,000) were offset by declines in temp employment (-49,000) and manufacturing (-46,000). The latter two numbers are known to be quite sensitive to the business cycle. Large downward revisions in payroll growth for August and September showed these months were also weaker than we had thought.

On the household side, the unemployment rate held steady. But the employment rate in the overall population modestly declined, as the number of workers in the labor force dropped a bit. The number of job losers rose by 167,000.

Overall, it is fair to see that the overall picture looks quite mixed. On Wednesday, we heard that GDP growth in the third quarter rose by 2.8%, suggesting that the economy remains strong. The employment reports over the past three months, including this one, have bounced around a great deal – with payroll increases of 78,000 (quite weak), 223,000 (very strong), and now 12,000 (also quite weak – even allowing for the hurricanes and strike) respectively. To be clear, we are not going over a cliff – but the job market seem to be on a path that is modestly downhill.

When the Fed meets late next week, a rate cut of .25 seems very likely, while they wait for more numbers before the December meeting. In the meantime, we hope that a clearer picture from the labor market emerges soon.