Job Growth Disappoints with Public Sector Gains as Private Jobs Fall
Only 12,000 jobs were created this month, and all were in the public sector, with private payrolls dropping by 28,000. This brings up questions about the role that hurricanes might have played in these numbers. Admittedly, this falls outside my expertise on non-farm payrolls, but it's plausible that hurricanes had some influence. However, that doesn't explain why the ADP report came in strong at 233,000 with upward revisions to the prior month. Furthermore, downward revisions for this month, totaling 112,000, are another negative sign, though it's hard to attribute those to hurricane effects.
The headline data for non-farm payrolls certainly isn't inspiring. The only glimmer of positivity lies in a small increase in hours worked, which is a minor sign of resilience. Unemployment held steady at 4.1%—down from 4.3% in July—but when you dig into the numbers, the real rate actually stands at 4.145%, close enough to 4.2% that it might draw Fed attention. Additionally, the household survey showed an addition of 150,000 jobs, yet the labor participation rate ticked down by 0.1% to 62.6%. This dip in participation likely helped prevent the official unemployment rate from hitting 4.2%, though the Fed might read this as a 0.1% or even 0.2% upward move in the underlying unemployment trend when they meet next week.
On the earnings front, we saw no change in monthly earnings growth, which remains at 0.4%. Last month's 0.4% figure was also revised down, casting some doubt on earnings stability. Not to sound alarmist (even though Halloween was yesterday), but the birth/death model added 368,000 to the jobs report this month. This number is likely before seasonal adjustments, but it's sobering to consider how dismal the report would be without that inclusion. For instance, the model suggests an 8,000 increase in manufacturing and a 26,000 boost in construction, yet the establishment survey shows a decline of 46,000 in these areas. The discrepancy suggests that it's unlikely new businesses were formed in sectors where jobs are vanishing, but stranger things have happened.
One chart I keep revisiting is the quit rate from the JOLTS report, which has now dropped to levels last seen midway through 2008. This metric feels like a form of "crowdsourcing," as people generally know if they can easily leave for better opportunities. Low quit rates tell us that workers don't feel optimistic about job prospects. This aligns with our "COVID inflation model," where we believe we've moved past peak service demand, and that's starting to show up in the job data.
As for the trajectory of the economy, I've been arguing that we're in for a "bumpy" landing—not a full recession but certainly not a smooth path either. Today's data reinforces that, but it's even rougher than anticipated. While I don't see reason to panic, the market will need to rethink its view on a "soft landing."
In terms of Fed policy, I still expect a 25 basis point cut next week. This should provide a temporary boost for bond yields, particularly at the front end, but I'd use any rally to re-establish shorts at the long end of the curve.
Turning to equities, this report might help stocks rebound from yesterday's decline, though we've seen unsustainable gains based on lower yields for the wrong reasons. With the election approaching, this isn't a report incumbents will welcome. Market uncertainty remains, with potential outcomes ranging from landslides to contested results, and earnings are only offering mixed support. So while some may see yesterday as a dip-buying opportunity, I remain cautious. And yes, can we all agree that turning the clocks back and losing evening daylight this weekend is just a bad idea?