The strength of economic data in recent months had “pushed the market to start pricing in an increased probability of a pause at one of the next two meetings. However, this should give the Fed enough room to continue with the path they laid out in the last SEP,” Jefferies said in a note, backing the Fed to cut rates by 25 basis points in November and December.
The U.S. economy added just 12,000 jobs in October, falling well short of economists’ expectations for 100,000 job gains. The unemployment rate held steady at 4.1%.
The weaker-than-expected jobs report was heavily distorted by the impact of hurricanes Helene and Milton, as well as the strike at Boeing (NYSE:BA), which sidelined about 33,000 workers, according to William Blair.
“This was a very messy employment report for October,” William Blair said. “The underlying data was heavily distorted by the impact from hurricanes Helene and Milton, along with the strike at Boeing, which has sidelined about 33,000 workers (with another 10,000 also on strike at other companies).”
While weather related disruptions were the main drag on payrolls during October, the underlying trend of labor market growth shows a trend that deccelerating.
“Attempting to cut through this trend by looking across a swath of data shows a labor market where growth is decelerating, where there are fewer job openings, where companies are facing increased pressure on margins from declining pricing power and rising interest costs, and where hours worked are tangibly slowing,” William Blair added.
Looking deeper into the details of the employment rate, temp staffing volume, adjusted for seasonality, fell 7.0% year-on-year and the temp penetration rate was 1.64%, down 3 basis points month on month and off from March 2022’s 2.1% all-time peak.
This dip, BMO said, is noteworthy because historically, once “this metric falls below 1.85% the U.S. has been in a recession.”
BMO cautioned, however, that this “monthly data series is notorious for revisions.”
The weaker jobs report is expected to support the case for further monetary policy easing.
“A further rate cut of 25 basis points looks the most likely outcome—a conclusion this report will only help support,” William Blair said.
Goldman Sachs agrees, forecasting the FOMC to lower the fed funds rate by 25bp at the November and December meetings.
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