Data Distortion Alert: With the election approaching, the non-farm data is "shrouded in fog"!

This week, a series of economic data released in the United States has painted a fairly clear picture: the economy continues to grow, while inflation can be said to have been almost suppressed. In any other month prior, tonight's non-farm payroll report would typically be the highlight.

However, this month is somewhat different, and tonight's non-farm report may become quite abstract. Due to the impact of two major hurricanes and several labor strikes (including a large-scale strike at Boeing), the employment data for October is expected to be significantly affected. Data distortion is never a good thing at any time, but releasing such a chaotic employment report before the elections and the Federal Reserve meeting is particularly tricky.

Economists believe this data is full of uncertainty, with a wide range of predictions for non-farm payroll numbers, and some even suggesting the possibility of negative values. Most economists agree that the strikes and hurricanes will lead to a reduction of about 100,000 jobs in October from the original estimates. The U.S. Bureau of Labor Statistics expects the strikes to result in a loss of 41,000 jobs. Overall, economists expect the October non-farm payroll to increase by 113,000, with the unemployment rate likely remaining at 4.1%, and the average hourly wage expected to rise by 0.3% month-over-month.

Claudia Sahm, chief economist at New Century Advisors and founder of the Sam Rule, stated in an interview:

“We hope to determine whether the economy is weakening or remaining in good shape... It will be very difficult to draw a convincing conclusion on Friday—though not impossible.”

Potential Trends

So far, the U.S. labor market has continued to show resilience and stability against the backdrop of the Federal Reserve's interest rate hikes. Job growth has slowed from the rapid increases seen during the recovery from the pandemic, which was expected. But even in the face of rapidly rising prices and high interest rate pressures to curb inflation, the labor market has not collapsed.

This does not mean there are no concerns, especially since the non-farm data for July and August fell short of expectations. Although there was a rebound in September, questions remain about whether this strong trend can be sustained.

According to the latest Job Openings and Labor Turnover Survey from the U.S. Bureau of Labor Statistics, hiring activity has declined, employees are no longer leaving jobs as freely as before, and the job vacancy rate has returned to levels similar to those in 2018 and 2019. Job vacancies in September fell to 7.4 million, nearly back to pre-pandemic levels.

Despite an overall cooling trend, recent months' job growth has begun to show a broader distribution across the economy. Layoffs remain low and continue to stay subdued. According to the U.S. Department of Labor, for the week ending October 26, initial jobless claims decreased by 12,000 to 216,000. Continuing claims also declined, dropping by 26,000 to 1.86 million for the week ending October 26.

Additionally, the latest Challenger job cuts report for October showed a nearly 24% decrease in layoffs compared to September, but a year-over-year increase of 4%. New data released by ADP on Wednesday indicates that the labor market appears to remain stable, with significant job growth in the private sector in October

A Large Number of Unknown Factors

Some shocks may distort the employment data for October, some of which are known, but there are also a large number of unknown factors.

What is known is that the latest strike report from the U.S. Bureau of Labor Statistics indicates that strikes by airline mechanics and hotel workers are expected to reduce October's employment figures by at least 40,000 jobs. The number of newly struck workers in October is 41,400 (most of whom are at Boeing), in addition to the ongoing strike by video game voice actors.

On October 11, Boeing announced plans to lay off 10%, or 17,000 positions. However, based on the timing of the announcement, these layoffs will not affect October's employment data.

What is unknown is that businesses do not operate in a vacuum; if operations are stalled or reduced due to worker absences, other companies will also be affected. For example, the Boeing strike may have already led to layoffs of 5,000 to 7,000 workers at non-Boeing companies in Washington and Oregon, but the actual impact is still difficult to determine.

The biggest unknown is the impact of hurricanes. After the last series of major hurricanes (Harvey and Irma in 2017), the following month's non-farm payroll data showed a reduction of 33,000 jobs in the U.S. However, the data was later revised upward as more information became available. In addition to the direct destructive impact preventing people from working, severe weather also affects the ability of the U.S. Bureau of Labor Statistics to collect data from businesses and households.

Sam stated, "During a hurricane, the most important priority is not to submit data to the Bureau of Labor Statistics." She added that estimates during natural disasters are often less precise