Jobs report shocker puts Fed interest-rate cut in play

The U.S. economy added far fewer-than-expected new jobs last month, as twin hurricanes in Florida and the Southeast, as well as a crippling strike at planemaker Boeing, disrupted a solid set of autumn employment figures.

The Bureau of Labor Statistics reported Friday that a net 12,000 new jobs were created in October, a tally well below the downwardly revised September total of 223,000 and also well south of this year's monthly average of around 200,000.

Average hourly earnings in October rose 0.4% from prior-month levels and were up 4% on an annual basis, with both tallies matching Wall Street forecasts.

The headline unemployment rate, however, held at 4.1%, while the labor force participation rate slipped modest to 62.6%, the lowest since June.

Economists were looking for a headline total of around 106,000 new hires in the September report with a headline unemployment rate of 4.1%.

The Labor Department estimated that the ongoing strike at troubled planemaker Boeing (BA) , which began last month, took around 44,000 jobs out of transportation sector jobs, but noted that it could not quantify the impact of Hurricanes Helen and Milton on the regional employment market.

Fed Chair Jerome Powell is expected to continue with the central bank's planned rate cuts over the final two months of the year, but inflation remains sticky.
Chip Somodevilla/Getty Images

"As we thought, this jobs report was going to have a lot of noise around any signal. With two hurricanes and a Boeing strike the likelihood of this report being clean was going to be hard," said Byron Anderson, head of fixed income at Laffer Tengler Investments.

"The unemployment rate not increasing again is a good sign for the economy," he added. "Hourly earnings increases are still increasing at a healthy pace so we still have confidence in the economy."

"The nonfarm payrolls may not be great on its face, but this recent drop should be a temporary miss as rebuilding and activity picks up [after] the Hurricanes and likelihood of the Boeing strike ending," Anderson concluded.

U.S. stock futures pared gains following the data release, with the S&P 500 now called 25 points higher and the Nasdaq priced for a 115 point advance and the Dow for a 155 point gain.

Benchmark 10-year Treasury note yields fell 7 basis points to 4.241% following the data release while rate-sensitive 2-year notes fell 13 basis points to 4.081%.

CME Group's FedWatch, meanwhile, pegs the odds of a quarter-point reduction next week in Washington at around 98%, with the chances of a follow-on cut in December jumping from 70% to around 85%.

Earlier this week, payroll processing group ADP's National Employment report for October showed private employers added 233,000 new hires, the most in more than a year, with gains in education and health services as well as construction leading the advance.

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“Even amid hurricane recovery, job growth was strong in October,” said ADP's chief economist, Nela Richardson. “As we round out the year, hiring in the U.S. is proving to be robust and broadly resilient.”

That report, in fact, came just prior to a solid reading for third-quarter GDP from the Commerce Department, which showed a 2.8% growth rate and solid consumer spending, as well as a PCE inflation report that hinted at renewed inflation pressures into the final months of the year.

"The deceleration of inflation, including the stickier components, should keep the Fed on track for cutting rates in November and December," said Jeffery Roach, chief economist at LPL Financial.

"However, investors should brace themselves for a few head fakes as the path to 2% inflation will be long and difficult."

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