Affected by hurricanes and strikes, U.S. non-farm payrolls hit a new low since 2020! But the Federal Reserve may choose to "ignore" it

According to the Zhitong Finance APP, the U.S. non-farm payroll data, closely watched by global investors, increased by only 12,000, far below economists' expectations. In October, U.S. non-farm employment grew at the slowest pace since 2020, while the unemployment rate remained relatively low during the month. The sharp decline in non-farm employment was mainly due to severe hurricanes and significant strike activities. Therefore, global asset management giant BlackRock stated after the non-farm data was released that there are many noise factors in this non-farm report, including data revisions and the impacts of hurricanes and strikes, and it is expected that this data will not affect the Federal Reserve's recent decisions.

The latest non-farm employment data shows that the U.S. non-farm payrolls increased by only 12,000 last month, and the non-farm employment data for the previous two months was revised downward. According to the latest data released by the U.S. Bureau of Labor Statistics on Friday, the unemployment rate remained at 4.1%, which is basically in line with economists' expectations, while hourly earnings remained stable.

It is worth noting that although economists generally expected the U.S. non-farm employment number for October to be in the range of 100,000 to 110,000, the expectations of economists from different institutions vary significantly. Non-farm employment data is very important for consumer spending, the strongest engine of U.S. economic growth. If consumer spending, which accounts for 80%-90% of U.S. GDP, is the driving force behind the continuous advancement of the U.S. economy, then non-farm employment data is the core fuel for this driving force, and a strong labor market will undoubtedly provide strong consumption power for U.S. consumers.

According to Bloomberg's statistics on financial institutions, the economist teams from Mizuho and Paragon currently have the highest forecast for October's non-farm data—both at 180,000. On the other end, Bloomberg's economist team predicts an astonishing -10,000 (indicating a forecast of negative growth) for tonight's non-farm data. Among Wall Street financial giants, Goldman Sachs (expected to be around 90,000) and JP Morgan (expected to be around 100,000) have estimates that are relatively close to the economists' median expectations.

The U.S. Bureau of Labor Statistics stated on Friday that hurricanes may have significantly affected hiring levels in some industries but indicated that it could not quantify the net negative impact of hurricanes on nationwide employment, hours, or income forecast monthly changes. The agency pointed out that the response rate for the business surveys providing information for these statistics was "far below average." The Bureau of Labor Statistics also stated that this did not have a significant impact on the national unemployment rate Economists have warned that the large-scale strike initiated by Boeing employees and the two super hurricanes—Helen and Milton—that struck the southeastern United States at the end of September and the beginning of October will have a more severe impact on non-farm employment numbers than the unemployment rate survey. As a result, economists have widely differing estimates for October's non-farm payroll numbers, ranging from a decrease of 10,000 to an increase of 180,000.

Despite the resilience of the U.S. economy and the unemployment rate remaining near historical lows, the long-standing high prices have led many Americans to hold a generally pessimistic view of the U.S. economy for much of President Biden's term. The overall inflation rate in the U.S. has significantly retreated from its mid-2022 peak, but prices for most goods and services continue to rise noticeably, forcing many consumers to tap into savings and credit cards to maintain their balance.

The U.S. Bureau of Labor Statistics reports that the latest average hourly wage has increased by 4% compared to the same period last year, a figure that is significantly lower than the nearly 6% seen in early 2022. Wage growth for the majority of workers in production and non-managerial roles has slightly rebounded to 4.1%.

With the number of available workers continuously increasing and the demand for new employees declining, the overall income growth in the U.S. has significantly slowed, which is a core factor driving the easing of U.S. inflation. Consequently, many employers have begun to reduce incentives to attract talent. Other data released this week by the U.S. Bureau of Labor Statistics shows that employment cost growth slowed significantly in the third quarter, while the number of job vacancies in the U.S. fell to its lowest level in over three years in September.

The Federal Reserve may view this non-farm data report as "noise."

This non-farm employment report is the last core data point for the U.S. economy before next week's Federal Reserve meeting and the U.S. presidential election on November 5. Employment issues have consistently been a top concern for voters in the U.S. presidential election. Other data released this week indicates that, driven by robust consumer spending, the U.S. economy, or U.S. GDP, grew very strongly in the third quarter, while inflation rates in September saw a slight uptick.

After receiving numerous warnings about the non-farm employment numbers due to the hurricanes, economists and Federal Reserve policymakers may derive little signal from this non-farm report, especially since Federal Reserve officials, including Chairman Powell, may view October's non-farm data as "noise" and instead strive to find other data indicating that the labor market may be gradually cooling.

Goldman Sachs commented after the non-farm data was released that the overly weak report suggests the Federal Reserve will continue its easing cycle next week. Goldman stated that the strike by Boeing employees and the hurricanes affected October's non-farm employment data, with job growth unexpectedly declining while the unemployment rate remained unchanged. Goldman indicated that the Federal Reserve may attribute the weak parts of today's data to one-off special factors.

Asset management giant BlackRock stated after the non-farm data was released that there are many noise factors in this non-farm report, including data revisions and the impacts of hurricanes and strikes, and therefore the firm expects this data will not affect any recent monetary policy decisions by the Federal Reserve. It is worth noting that Federal Reserve officials have entered a "quiet period" and cannot make any comments ahead of the November interest rate decision, so their latest views on the non-farm data are unavailable After the non-farm payrolls hit a new low in four years, expectations for a Federal Reserve rate cut have risen

Following the much stronger-than-expected "little non-farm" data—namely, the ADP employment data and the core PCE data, which is the Federal Reserve's preferred inflation indicator—interest rate futures traders are still broadly betting on a 25 basis point rate cut by the Federal Reserve in November. However, some traders have shifted to betting that the Federal Reserve will announce a "pause in rate cuts" in December, with a smaller number of traders even betting that the Federal Reserve might announce a pause in the rate cut process as early as November.

After the October non-farm employment data was released, the latest CME "FedWatch Tool" shows that the interest rate futures market continues to bet on a 25 basis point rate cut in November, with a probability as high as 98%. The number of traders betting on the Federal Reserve maintaining the benchmark interest rate in December has decreased, with the probability of no rate cut in December dropping from nearly 40% to less than 20%. Previously, on Thursday evening, the CME "FedWatch Tool" indicated that following the much stronger-than-expected ADP employment data and the latest economic data showing a month-on-month acceleration in core PCE, the probability of the Federal Reserve not cutting rates in December surged from 0 before the ADP data release to over 30%, briefly approaching 40%.

After the report was released, U.S. Treasury yields across various maturities fell, and the three major U.S. stock index futures rose collectively due to the increased expectations of a rate cut.

"The weak U.S. non-farm employment data in October is not solely due to the hurricanes; we are also seeing signs of economic slowdown in some regions of the U.S. We believe this employment data will lead the Federal Reserve to announce a 25 basis point rate cut at the meetings in November and December, with gradual rate cuts being the theme for the foreseeable future," said Bloomberg Economics economist Anna Wong and others.

The impact of hurricanes cannot be ignored

The latest non-farm employment data shows that hiring in the U.S. healthcare and government sectors significantly exceeded expectations, but employment numbers in other industries remained flat or declined. There were substantial declines in sectors such as retail trade, transportation and warehousing, and leisure and hospitality—primarily due to the hurricanes and slow recovery from disasters disrupting hiring activities. Manufacturing employment decreased by 46,000, marking the largest drop since April 2020, mainly reflecting the negative impact of multiple large-scale strikes, including 33,000 Boeing workers.

Hurricane Helen made landfall on September 26, and Hurricane Milton struck on October 9, coinciding with the reference period for the October non-farm data statistics. The non-farm employment report consists of two surveys, with the non-farm employment figures coming from a survey of businesses. If employees miss the entire payroll reference period, including the 12th of each month, they will not be counted as "employed"—even if they technically still have jobs, they are simply excluded from the employment statistics due to the rare severe weather that caused them to miss the reporting period.

The household survey used to calculate the unemployment rate does not exclude these individuals. Surprisingly, this measure paints a bleaker employment picture, showing a decline for the first time since May. The number of people reporting they were unable to work due to weather conditions surged to 512,000, the highest level since January The unemployment rate remained stable, but the increase in the number of unemployed reached the largest rise since February, while the number of resignations decreased. The participation rate, which is the proportion of the population that is working or looking for work, also derived from household surveys, saw a slight decline. The labor participation rate for workers aged 25-54 (also known as prime-age workers) unexpectedly dropped to 83.5%, the lowest level since April