According to economists, the growth in jobs is expected to have slowed down in October compared to the previous month’s outstanding performance. This decline can be attributed to a decrease in demand for hospitality workers and the impact of auto strikes on the manufacturing sector.
Consensus expectations from FactSet indicate that the U.S. economy is forecasted to have added around 189,000 jobs in October, a significant drop from the unexpectedly strong figure of 336,000 jobs added in September. Despite this slowdown, economists anticipate that the unemployment rate will remain stable at 3.8%.
The expected moderation in hiring during October marks a return to the more moderate monthly job growth witnessed earlier this year. September stood out as an outlier, surpassing economists’ predictions, largely due to the surge in consumer spending over the summer which led to increased demand for workers in the leisure and hospitality sector.
However, in October, this trend is expected to have faded. Economists predict a decline in both leisure and hospitality hiring, as well as manufacturing employment. The decrease in manufacturing employment can be attributed to the strike of 30,000 autoworkers during the month.
The upcoming October jobs report holds significant importance as one of the last major economic data sets that will be released before the Federal Reserve convenes again in December. During this meeting, Fed officials will determine whether or not to raise interest rates by another quarter percentage point.
Fed Chairman Jerome Powell has left room for the possibility of another interest-rate hike next month. He has identified the October and November jobs reports as crucial factors that will play a role in shaping the officials’ decision.
Despite this, Powell has also hinted that the threshold for raising rates is now higher due to the cooling inflation and the implementation of restrictive policies. Therefore, if the jobs report aligns with economists’ forecasts, it is unlikely to fuel expectations for another interest-rate hike.
The Bar Rises for Strong Jobs Growth
A team of BNP Paribas economists, led by Carl Riccadonna, has concluded that the bar has been raised for stronger jobs growth to trigger more policy tightening. In their view, as long as solid job growth is accompanied by moderate wage increases, the Federal Reserve will remain patient.
Average Hourly Earnings and Services Inflation
The upcoming October jobs report will closely examine average hourly earnings, as wage growth directly affects services inflation. The reason why the Fed did not raise rates at the recent FOMC meeting, despite September’s surge in job creation, was because wage growth had moderated. This suggested that the labor market remained strong without overheating in an inflationary manner.
Economists anticipate that average hourly earnings rose 0.3% in October, compared to a monthly pace of 0.2% in September. Year-over-year, this would represent a decrease from 4.2% to 4%.
Keeping an Eye on Revisions
Another aspect of the October jobs report worth watching is the size of revisions to previous months’ figures. Each monthly payroll figure is updated twice as additional data becomes available. Recently, revisions have been “atypically volatile,” as Aaron Terrazzas, chief economist with Glassdoor, described it.
Significant revisions to the upside could generate concerns that the labor market is reheating, while sizeable revisions in the opposite direction could indicate an anticipated loosening of the labor market, which may result in a rise in unemployment.
Terrazzas adds that the vulnerability of the macro labor market and economic narrative to revisions, which are typically a mere footnote, reveals the fragile convictions underlying our collective understanding of where the economy is heading.
The Labor Department is set to release the October jobs report on Friday at 8:30 a.m. ET.