Wall Street Commentary on October Non-Farm Payrolls: No Impact on Federal Reserve's 25 Basis Points Rate Cut This Month, Data Interpretation "Subject to Interpretation"

In October, the U.S. non-farm payrolls saw a sharp decline to 12,000, far below expectations, while the unemployment rate remained at 4.1%, in line with expectations. Nick Timiraos, a reporter for The Wall Street Journal, known as the "new Federal Reserve correspondent," stated that the analysis of this employment report can be "subjective," with most Wall Street analysts believing that the poor data was mainly due to two hurricanes in October and the Boeing strike. However, some analysts are concerned that the job market is indeed deteriorating. Almost all analysts agree that this report will not affect expectations for a 25 basis point rate cut by the Federal Reserve this month.

New Federal Reserve Correspondent: Subjective Interpretation

Nick Timiraos stated that the weak October employment report released on Friday is the kind of data that allows for "subjective interpretation."

He said that if you previously believed the labor market was weakening, then learning that net hiring in October increased by only 12,000 and that private sector employment slightly declined may reinforce that view. The unemployment rate remained at 4.1%, but part of this is due to a decrease in the number of job seekers and an increase in permanent layoffs.

However, if you believed before the data release that the data was too noisy to draw any broad conclusions after a month marked by two hurricanes and multiple strikes, then there is also reason to maintain that view. After all, the U.S. Department of Commerce stated on Wednesday that consumer spending drove strong economic growth again this quarter.

Overall, Friday's report is not expected to change the clear expectation of a 25 basis point rate cut by the Federal Reserve in November. But it may emphasize the fact that the Fed's future path will depend on how the economy performs and what risks may affect the expectations for steady growth and a gradual decline in inflation.

Analysts: Poor Data Due to Hurricanes and Strikes

Chris Low from FHN Financial noted in a report:

"The main conclusion from the October employment report is that the two hurricanes in October had a profound impact on the lives of hundreds of thousands of people. This will also have economic implications, although this impact may fade from the GDP perspective before the end of this quarter."

Brian Coulton, Chief Economist at Fitch Ratings:

"The estimated impact of 44,000 strikes from the U.S. Bureau of Labor Statistics can be added to the employment growth in October, and then a three-month moving average can be taken. This results in 119,000, which, although slower than the average of 207,000 in the first half of the year, is far from severe. Given that consumer demand remains strong, the Fed is unlikely to pay too much attention to the shocking figure of 12,000."

Lindsay Rosner, Head of Multi-Sector Fixed Income Investment at Goldman Sachs Asset Management, stated:

"Strikes and storms affected this month's employment data, leading to an unexpected decline in job growth while the unemployment rate remained unchanged. Although the Fed may attribute some of the weakness in today's data to one-off factors, the weak data supports the Fed's continuation of its easing cycle at next week's meeting. The data performance is like a storm, but the prospect of a 25 basis point rate cut in November is becoming clearer Guggenheim Investments' U.S. economist Matt Bush stated,

“The Federal Reserve has basically decided that, regardless of what this report says, it is due to the uncertainty brought about by the hurricane. The question is whether they might try to lower expectations for a rate cut after the November meeting, possibly reducing expectations for a rate cut in December, or decreasing their expectations for the number of rate cuts in 2025. This report is weak enough that they will keep all options open and clearly leave the door open for further rate cuts in December and subsequent meetings.”

Orion Portfolio Solutions' senior investment strategist Ben Vaske said:

“The job growth in October has significantly declined compared to September and market consensus. However, considering the uncertainty of the elections, recent labor strikes, and the impact of the hurricane on the southeastern United States, the low growth is somewhat expected—the labor market has begun to recover from the latter two impacts. Despite the slowdown in growth, the unemployment rate remains stable, and the initial reaction does not seem to have affected expectations for the Federal Reserve to cut rates by 25 basis points again in November.”

Allianz Investment Management's senior investment strategist Charlie Ripiley stated,

“From an investment perspective, this doesn’t really change people’s expectations for the Federal Reserve or an economic slowdown. We have to ignore this month’s data and see what the results will be in the coming months without too much noise.”

“There are clearly some mixed signals—weak employment data relative to a largely unchanged unemployment rate, along with a slight increase in monthly wages. Overall, this is quite a mixed report.”

Laffer Tengler Investments' fixed income strategist Bryon Anderson said:

“As we expected, the hurricane and Boeing strike created a lot of noise in this employment report. The unemployment rate did not rise again, which is a good sign for the economy and breaks the panic that arose months ago due to concerns over the 'Sam Rule.' Hourly wages are still growing healthily, so we are confident in the economy. Non-farm employment may appear poor on the surface, but this decline should be temporary, as the potential for increased activity from reconstruction after the hurricane and the end of the Boeing strike will likely boost numbers.”

Pessimists: The job market is indeed deteriorating

However, some analysts hold a different view, arguing that even considering the impacts of the hurricane and strikes, the U.S. job market is still deteriorating.

Seema Shah, Chief Global Strategist at Principal Asset Management, stated that overall, the data shows the job market is slowing down:

“A deeper look at these data indicates that, amidst all the noise and disruptions, the labor market is actually slowing down. The market expected job numbers to increase by 100,000, which already considered the impact of the hurricane, so the significantly lower-than-expected result indicates potential weakness

"This once again proves that the Federal Reserve must continue its easing cycle, despite unexpectedly strong economic activity data in recent weeks. A 25 basis point rate cut is expected in both November and December."

Peter Cardillo, Chief Market Economist at Spartan Capital Securities, stated,

"Clearly, even considering the hurricane in Florida and the Boeing strike, there is still a significant gap, indicating that the labor market may be weakening, and the Federal Reserve may have to consider taking more aggressive measures."

"What is concerning is that hourly wages have risen again by 0.4%, while the labor participation rate is declining."

"This could reignite the possibility of the Federal Reserve cutting rates twice before the end of the year. As of yesterday, I still expected the Federal Reserve might skip a rate cut at the next meeting, but I believe we can anticipate a 25 basis point cut in both November and December."

Helen Given, Deputy Director of Trading at Monex USA, stated:

"It is expected that overall employment data will be low for a long time, although it may not be as low as anticipated, but it seems that traders are slightly skeptical about all the data this morning."

"It is worth noting that the net employment revision data for the past two months has been quite negative, which raises questions about the bright data from September. The unemployment rate has not changed, and average hourly wages remain stable."

"Since the external factors affecting the data have been widely discussed before the release, the foreign exchange market has reacted mildly."

Robert Pavlik, Senior Portfolio Manager at Dakota Wealth, stated,

"We expected the data to be weak, but did not anticipate it to be this weak. This is the result of the economic slowdown combined with the hurricane and the strike. So I am not too concerned about its impact on the overall stock market... We still expect another 25 basis point rate cut."