The most "pessimistically" anticipated non-farm payroll report of the year will be announced tonight! Will there be any major surprises?

The U.S. non-farm payroll report for October will be released tonight at 20:30. This report is expected to show a significant slowdown in job growth, mainly due to the recent hurricanes and several major strike activities. 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 those at Boeing, is expected to result in a loss of about 41,000 jobs in October. The unemployment losses caused by the hurricanes have not yet been clearly defined, but the impact is expected to be significant. Overall, economists expect the non-farm payrolls to increase by 113,000 in October, a sharp decline from the previous value of 254,000 in September, marking the lowest forecast for the year; the unemployment rate is expected to remain at 4.1%, with an average hourly wage growth rate of 0.3%.

Strikes and Hurricanes May Bring Significant Downside Surprises

Some economists believe that the impact of strikes and hurricanes will be much greater than the market consensus, leading to significant downside surprises in the non-farm data.

For instance, Gregory Daco, chief economist at EY-Parthenon, predicts that the U.S. will only add 70,000 non-farm jobs in October, significantly lower than the general forecast. He believes that strikes will lead to job losses in manufacturing, while hurricanes will affect construction, mining, leisure, and hospitality sectors.

Daco suggests that after excluding these two temporary shocks, the net increase in non-farm jobs would be around 170,000. He explains, “The key is the fundamental resilience of the labor market, rather than the impact of strikes or hurricanes on the labor market.”

“Two destructive hurricanes and two major strikes in October have affected the work lives of many Americans,” said Bill Adams, chief economist at Comerica Bank. He predicts that the net increase in non-farm jobs will only be 30,000, which is far below general expectations. He believes that most job losses will come from part-time workers in the accommodation and food services sectors.

Adams stated, the slowdown in job growth in October was expected, but “this hardly reflects the overall trend of the economy.” Considering the aforementioned temporary shocks, he believes the overall labor market remains healthy, and these impacts are expected to gradually fade in future reports.

Goldman Sachs analysts also expect the data from this report to be weak, predicting only 95,000 new non-farm jobs in October. However, it is worth noting that the ADP data, often referred to as the “little non-farm,” released on Wednesday was significantly higher than expected, even recording the largest increase since July 2023, leaving open the possibility of a significant upside surprise in tonight's non-farm report.

Non-farm payroll increases per month in 2023 Adams and Daco predict that the month-on-month wage growth in October will exceed general expectations, reaching 0.5%, attributing this to disruptions in the labor market in certain regions and industries. Daco stated, "I am cautious about any wage growth data, as changes in working hours need to be considered." He explained that if working hours are reduced due to the aforementioned disruptions, the wage growth figures should also be adjusted downward to accurately understand the potential trends.

What impact does the last non-farm payroll report before the Federal Reserve's November meeting have?

The Federal Reserve chose to initiate a rate-cutting cycle with a 50 basis point reduction in September, shifting its focus from curbing inflation to supporting the economy. The Federal Reserve will meet next week, and investors are watching whether this non-farm payroll report will affect the magnitude and pace of further rate cuts. According to the Chicago Mercantile Exchange (CME) FedWatch Tool, the bond market has almost fully priced in a 25 basis point rate cut in November.

The probability of a 25bp rate cut in November is approaching 100%.

"The Federal Reserve is unlikely to change direction because of this report," Adams stated, noting that only extremely unexpected data could change officials' minds, thus expecting the Federal Reserve to cut rates by 25 basis points at next week's meeting.

Daco also expects a 25 basis point cut but warns that some policymakers may use weak October non-farm data to bolster support for more aggressive rate cuts. He said, "I don't think Powell will support the camp for aggressive rate cuts." He anticipates that 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 is important to note that the Federal Reserve's November rate decision has been postponed to 3 AM on November 8 due to the U.S. elections and daylight saving time, with Powell's press conference scheduled for 3:30 AM.

What impact does the non-farm payroll report have on the U.S. elections?

The release date of this non-farm payroll report is just 4 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 attempt to question the authenticity of the economic data, even if it is prepared by non-political institutions with strict agreements to ensure no interference.

From the unemployment rate data in October before past U.S. elections, the current performance of the job market is the best since 2000. In October 2020, when Trump was campaigning for re-election, the unemployment rate rose to 6.8% due to the pandemic, while in October 2016, it was 4.9%.

Historical U.S. unemployment rates before U.S. elections Before the official election day, the poll support rates for Democratic and Republican candidates remain very close in swing states. Many voters indicate that economic concerns are still the top issue, and their final voting may be influenced by the non-farm payroll report. In hurricane-affected states like 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 battlegrounds that Trump and Harris must win.

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 levels before the internet bubble of 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 considered the most important "prize" in the Electoral College battle, as it has the highest number of electoral votes among the seven swing states, totaling 19 votes. Although the state's unemployment rate has risen by 1 percentage point compared to September 2023, its 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. election, the non-farm payroll report for October, to be released tonight at 20:30, will stir the nerves of global financial markets, and tensions are about to escalate!