October Jobs Report Miss Drives Rate Cut Bets

Investing.com — The big miss on the October jobs report has reignited expectations for Federal Reserve rate cuts in the upcoming meetings, calming worries that recent strong economic data would compel the central bank to pause.

According to Jefferies, the prior robust economic indicators had led the market to anticipate an increased likelihood of a pause at one of the next two meetings. However, they believe the Fed will have enough leeway to pursue their outlined strategy from the last SEP, with rate cuts of 25 basis points projected for November and December.

The U.S. economy added only 12,000 jobs in October, noticeably below economists' expectations of a 100,000 gain, while the unemployment rate remained steady at 4.1%.

The disappointing jobs report was significantly influenced by hurricane impacts and a Boeing strike, which left approximately 33,000 workers sidelined, according to William Blair.

William Blair described the report as "messy" due to those distortions, mentioning the hurricanes and the Boeing strike as factors contributing to the job figures. Despite that, a trend of decelerating labor market growth is evident.

Analyzing a range of data indicates a decline in job openings, companies facing margin pressures from decreased pricing power and rising interest costs, and a reduction in hours worked, per William Blair.

A closer look at employment metrics highlights a 7.0% year-on-year fall in temp staffing volume, while the temp penetration rate decreased to 1.64%, down 3 basis points month-over-month and significantly lower than the March 2022 peak of 2.1%. BMO noted that historically, a drop below a 1.85% penetration rate signals a recession.

Despite these troubling signs, BMO emphasized that monthly data is often subject to revisions. The weak jobs report is poised to bolster the argument for additional monetary policy easing.

According to William Blair, a further 25 basis points cut seems most probable, with the report strengthening this conclusion. Goldman Sachs concurs, predicting a 25 basis point decrease in the fed funds rate at the November and December FOMC meetings.