BLS Jobs Report Preview (October)
A blurry snapshot
TL;DR: This report will be distorted by a plethora of temporary disruptions (hurricanes and strikes), so it will be hard to get a clear signal on the labor market’s trajectory. Last month’s report suggested that labor market cooling has been less intense than previously believed, but we might not know for sure until next month.
This preview will be split into two sections:
The Big Picture
This Month’s Noise
More below chart.
1. The Big Picture
This month’s report will be distorted by the impact of hurricanes and strikes, so I’m not sure we’ll get a lot of clarity on the labor market’s trajectory. But we need it, because last month’s report really threw a curveball!
Before last month’s report, I was fairly convinced that the unemployment rate was on a trajectory of increase toward 4.5%-4.6% early next year, with some risks of a larger increase. After last month’s sharp decline (to 4.05%, generously rounded up to 4.1%), the peak is likely to be lower - even if, as a relative pessimist, I think a small further increase to 4.3%-4.4% is more likely than not.
On the other side, the report also awakened some optimism that labor market cooling is over. My boss, the Burning Glass Institute’s Chief Economist Gad Levanon, is one of them. Gad’s put forward a plausible theory that sharply slowing immigration flows will be a potential circuit breaker for labor market cooling. That would lead to a shift in data mix from “strong employment gains and rising unemployment” to “weak employment gains and falling unemployment”. I’m reasonably sold on the argument, but less convinced that we’re already seeing its impact in the data - after all, last month was characterized not just by a falling unemployment rate but also by a big increase in nonfarm employment.
Regardless, we could really use some high quality data to settle this debate. And unfortunately, Friday’s report is unlikely to provide it. It’s possible that the data will be so strong or weak so as to break the impasse, but more likely that we’ll be in a confusing middle zone, straining to interpret mediocre but not terrible data. In that case expect a lot of indecisive debate about how much softness can be attributed to special factors.
2. This Month’s Noise
There are two main sources of noise in this month’s data: hurricanes and strikes.
On the strike side, there are 44K workers currently on strike, 41K of which have initiated action during the window relevant to this month’s report.
On the hurricane side, Hurricane Helene devastated southern Appalachia (with a particularly grim impact on North Carolina) in late September and Hurricane Milton, hammered Florida in the 2nd week of October.
None of these special factors will have permanent effects on the aggregate data. Setting aside the devastating human tragedy of these hurricanes, within a few months their impact will fade from the national employment data. And once the strikes end, employment in affected industries will quickly return back to normal. Economists will spend a lot of jobs Friday arguing about what the data would have looked like without this temporary noise.
The places where hurricane impact is most likely to explicitly show up is in the Household Survey (CPS). The CPS collects data on whether employed people are absent from work (as well as reasons for the absence, including weather and labor disputes). Additionally, it collects data on whether people who normally work full-time ended up temporarily working part-time hours. I’d be surprised if these don’t show spikes this month, especially on the weather side.
In the CPS, all these absent and temporarily-part-time people count as employed (i.e. there should be no direct impact on unemployment; more on indirect later). But at least some of them won’t show up as employed in the establishment survey (CES), because you don’t count as employed there if you don’t get paid. This definitely applies to the striking workers, and may also apply to some hurricane-impacted non-salaried workers. So pick your baseline expectation for how many workers would be added in October - and subtract at least 42K for the strikes, and perhaps more for the hurricanes.
Other aspects of the establishment survey might also be affected. Some workers were only able to work part time, possibly lowering the average workweek. If absent workers typically have a shorter or longer workweek than the average worker, that could also impact the average workweek up or down. And on earnings, there could be weird effects as well - wage growth could be boosted or lowered.
Beyond these direct impacts, there could be 2nd round effects. The Boeing strike in particular is likely to affect suppliers - these workers could be furloughed or have their hours cut. If they are furloughed, they’d count as unemployed (“on temporary layoff”) - unlike striking or weather-disrupted workers. So while the strikes and hurricanes are unlikely to have a direct impact on unemployment, a small indirect one is fairly possible.
What a mess! See you in December.