Suspect Employment Report Gives the Fed Cover for Rate Cuts
While it clears the Fed for next week, this late data shifts questions to its December meeting.
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If your eyebrows were raised when you saw the 12,000 jobs gain headline for this morning’s October Employment Report, rest assured you were not alone. Before we jump to any quick conclusions, as expected, the report clearly states the data is compromised by hurricanes Helene and Milton as well as the short-lived port strike.
What we’re scratching our heads about is how the October Employment Report showed a loss of 28,000 private sector jobs when ADP’s October Employment Change Report found private employers added 233,000 jobs during the month, up from 159,000 in September.
Let’s remember as well that S&P Global’s SPGI Flash PMI report for October showed only a modest drop in the pace of job creation compared to September. Presumably, the findings in both of those reports were also impacted by the hurricanes and port strike. In our view, the data in the October Employment report is rather suspect because of lower survey collection rates and because the process is “not designed to isolate effects from extreme weather events."
Issues in the Data but it Clears the Fed for November
In other words, we’re looking at some bad data in the October Employment Report and this means, more so than usual, folks will look more closely at revisions coming in the November and December Employment Reports.
Based on the figures from ADP and the October Flash PMI report, we were looking for the October Employment Report to come in ahead of the 113,000 consensus and raise the probability that the Fed slows rate cut prospects.
Clearly, that is not what the data showed, but again the October Employment report has more than a few holes.
While the Fed will see issues in the October Employment Report, it will give the central bank sufficient cover to deliver a 25 basis-point rate cut next week, while remaining data-dependent when it comes to the pace of future rate cuts after delivering 75 basis points in cuts between its last meeting and next weeks. This also means there will be no letup on the importance of data leading up to the Fed’s December monetary policy meeting.
We’ll let that data talk to us and update our Fed rate cut expectations as warranted, repositioning the Portfolio as needed for the coming quarters.
