The U.S. October non-farm employment report will be released tonight at 20:30. This report is expected to show a significant slowdown in job additions, mainly due to the recent hurricanes and several major strikes. With the U.S. elections and the Federal Reserve's November meeting approaching, this non-farm report will be exceptionally significant!
According to data from the Bureau of Labor Statistics, a new round of strike activities, including Boeing, will lead to a reduction of about 41,000 jobs in October. The unemployment losses due to hurricanes are not yet clear, but they are expected to be significant. Overall, economists expect an increase of 113,000 non-farm jobs in October, a significant decrease from the previous value of 254,000 in September, and it is also the lowest forecast for the year; the unemployment rate is expected to remain at 4.1%, and the average monthly wage growth is expected to be 0.3%.
Strikes and hurricanes may bring significant downward surprises
Some economists believe the impact of strikes and hurricanes will be far greater than the market consensus, leading to significant downward surprises in non-farm data.
For example, EY-Parthenon chief economist Gregory Daco expects that only 70,000 non-farm jobs will be added in October, far below general predictions. He believes that strikes have led to job losses in manufacturing, while hurricanes will affect the construction, mining, leisure, and hospitality industries.
Daco believes that after excluding these two temporary shocks, the new non-farm population is about 170,000. He explained, 'The key lies in the fundamental resilience of the labor market, not in the impact of strikes or hurricanes on the labor market.'
"The two destructive hurricanes and two major strikes in October affected the work lives of many Americans," said Bill Adams, chief economist at Comerica Bank, who predicts that the new non-farm population will be only 30,000, much lower than the general expectation. He believes that most job losses will come from part-time workers in the accommodation and food service industries.
Adams stated that the slowdown in job growth in October was expected, but 'this hardly indicates the overall trend of the economy.' After considering the aforementioned temporary shocks, he believes that the overall labor market remains healthy and expects these impacts to gradually fade in future reports.
Goldman Sachs analysts also expect the data in this report to be weak, predicting that only 95,000 non-farm jobs will be added in October. However, it is worth noting that Wednesday's ADP data, known as the 'little non-farm,' was significantly higher than expected, even recording the largest increase since July 2023, and it is not ruled out that tonight's non-farm report may also show significant upward surprises.
Monthly increase in non-farm payrolls from 2023 to date
Adams and Daco predict that the month-on-month wage growth in October will exceed general expectations, reaching 0.5%, believing this is also due to disruptions in the labor markets of certain regions and industries. Daco stated, 'I am cautious about any wage growth data, and we need to consider changes in working hours.' He explained that if working hours are reduced due to the aforementioned disruptions, wage growth figures should also be adjusted downward to accurately understand potential trends.
What impact will the last non-farm report before the Federal Reserve's November meeting have?
The Federal Reserve chose to start the rate cut cycle with a 50 basis point cut in September and shifted its focus from curbing inflation to supporting the economy. The Federal Reserve will meet next week, and investors are paying attention to whether this non-farm employment report will affect the magnitude and pace of further rate cuts. According to the CME FedWatch Tool, the bond market has almost fully priced in the possibility of a 25 basis point cut in November.
The possibility of a 25bp rate cut in November is approaching 100%
"The Federal Reserve is unlikely to change direction because of this report," Adams said, noting that only extremely unexpected data could change officials' minds; therefore, a 25 basis point rate cut is expected at the Fed's meeting next week.
Daco also expects a rate cut of 25 basis points, but he warns that some policymakers may use weak October non-farm data to strengthen support for more aggressive cuts. He said, 'I do not believe Powell will support the camp for aggressive cuts.' He expects Powell will still believe that gradual adjustments to monetary policy are most beneficial for the economy and will lead the committee to choose a 25 basis point cut.
It should be noted that the Federal Reserve's interest rate decision in November has been postponed to 3:00 AM on Friday, November 8, due to the U.S. elections and daylight saving time; Powell's press conference will be held at 3:30 AM.
What impact does non-farm data have on the U.S. elections?
The release date of this non-farm report is only four days before the U.S. elections, and senior Democrats believe that this week's data will provide them with a final opportunity to convince voters that the U.S. economy is much better than imagined. However, Trump and his allies may try to question the authenticity of the economic data, even if it is prepared by non-political institutions and has strict agreements to ensure there is no interference.
From historical data on unemployment rates in October before U.S. elections, the current performance of the labor market is the best since 2000. In October 2020, the unemployment rate rose to 6.8% due to the pandemic when Trump was running for re-election, while in October 2016 it was 4.9%.
Historical U.S. unemployment rates before elections
Before the official election day, the polling support rates for Democratic and Republican candidates in swing states are still very close. Many voters indicate that economic concerns remain the top issue, and these voters' final votes may be influenced by the non-farm employment report. In states affected by hurricanes, such as North Carolina and Georgia, the number of initial unemployment claims has increased by about 14,000 in the past two weeks, and these two states happen to be critical battlegrounds for Trump and Harris.
In Arizona and Wisconsin, where Trump won in 2016 but lost in 2020, the unemployment rate has significantly decreased year-on-year. For example, Arizona's unemployment rate of 3.5% continues to set a historical low, even surpassing the levels before the internet bubble era in the late 1990s. As for Wisconsin, the unemployment rate of 2.9% has returned to the levels maintained in the years before the pandemic.
Pennsylvania can be said to be the most important 'prize' in the electoral college battle, as it has the highest number of electoral votes among the seven swing states, with 19 votes. Although the state's unemployment rate has increased by 1 percentage point compared to September 2023, the latest figure is only 3.4%, and it has remained below 4% for two consecutive years.
Whether from the perspective of the Federal Reserve's interest rate cuts or the U.S. elections, the October non-farm employment report to be released tonight at 20:30 will stir the nerves of global financial markets, and tensions are about to erupt!
Article forwarded from: Jinshi Data