Nonfarm payrolls rise a scant 12,000 in October after a net downward revision of 112,000 in the prior two months. The October increase is well below the consensus of up 125,000 in the Econoday survey of forecasters. The BLS noted that Hurricane Milton fell within the survey reference period for October both the establishment and household surveys.

The BLS said,"The initial establishment survey collection rate for October was well below average. However, collection rates were similar in storm-affected areas and unaffected areas. A larger influence on the October collection rate for establishment data was the timing and length of the collection period. This period, which can range from 10 to 16 days, lasted 10 days in October and was completed several days before the end of the month." The BLS added,"It is likely that payroll employment estimates in some industries were affected by the hurricanes [both Helene in September and Milton in October]; however, it is not possible to quantify the net effect on the over-the-month change in national employment, hours, or earnings estimates because the establishment survey is not designed to isolate effects from extreme weather events. There was no discernible effect on the national unemployment rate from the household survey."

While the hurricanes have undoubtedly had an impact on the October data, parsing out exactly what that is is difficult.

Private payrolls are down 28,000 in October. There is a 44,000 decrease in transportation equipment manufacturing that probably includes the impact from the Boeing strike which encompasses 38,000 workers. A dip of 6,000 in motor vehicles and parts may be related to the hurricanes that temporarily shut down some plants in the Southeast. Professional and business services are down 47,000 and mostly reflect a 48,400 in administrative and support and waste management and remediation services that could also be storm-related. There is an increase of 52,300 in health care that might include some emergency workers but is more likely due to general demand in the health care industry. The dip of 4,000 in leisure and hospitality that includes a new strike of 3,400 among hotel workers.

Government payrolls are up 40,000 in October with state government hiring up 18,000 and local government up 21,000. Some of this may be short-term workers to respond to regional emergency conditions.

Fed policymakers will probably reserve judgement as to whether the job gains have suddenly decelerated until they have another month or two of data to clarify if these are short-term weather impacts or a more fundamental shift.
In the meantime, average hourly earnings are up 0.4 percent in October from September and up 4.0 percent year-over-year. This is an indication that earnings gains are not losing much steam as yet even if the labor market is softer. The average workweek is unchanged at 34.3 in October.

The unemployment rate is unchanged at 4.1 percent in October and the U-6 unemployment rate is also unchanged at 7.7 percent. The size of the labor force is down 220,000 with the number of unemployed up 150,000 and the number of employed down 368,000. A shrinking labor force in October brought the participation rate down a tenth to 62.6 percent. This does not suggest that the labor market is fundamentally weakening with labor supply tightening somewhat.

Strikes and hurricanes are expected to skew employment lower with total nonfarm payrolls up 125,000, down from September's 254,000 increase. The jobless rate is expected flat at 4.1 percent. Hourly earnings are seen up by a trend-like 0.3 percent on the month.

The most closely watched of all economic indicators, the employment situation is a set of monthly labor market indicators based on two separate reports: the establishment survey which tracks 650,000 worksites and offers the nonfarm payroll and average hourly earnings headlines and the household survey which interviews 60,000 households and generates the unemployment rate.

Nonfarm payrolls track the number of part-time and full-time employees in both business and government. Average hourly earnings track employee pay while the average workweek, also part of the establishment survey, tracks the number of hours worked. The report's private payroll measure excludes government workers.

The unemployment rate measures the number of unemployed as a percentage of the labor force. In order to be counted as unemployed, one must be actively looking for work. Other commonly known data from the household survey include the labor supply and discouraged workers.

If ever there was an economic report that can move the markets, this is it! The anticipation on Wall Street each month is palpable, the reactions can be dramatic, and the information for investors is invaluable. By digging just a little deeper than the headline unemployment rate, investors can take more strategic control of their portfolio and even take advantage of unique investment opportunities that often arise in the days surrounding this report.

The employment data give the most comprehensive report on how many people are looking for jobs, how many have them, what they're getting paid and how many hours they are working. These numbers are the best way to gauge the current state as well as the future direction of the economy. Nonfarm payrolls are categorized by sectors. This sector data can go a long way in helping investors determine in which economic sectors they intend to invest.

The employment statistics also provide insight on wage trends, and wage inflation is high on the list of opponents of easy monetary policy. Fed officials constantly monitor this data watching for even the smallest signs of potential inflationary pressures, even when economic conditions are soggy. If inflation is under control, it is easier for the Fed to maintain a more accommodative monetary policy. If inflation is a problem, the Fed is limited in providing economic stimulus.

By tracking the jobs data, investors can sense the degree of tightness in the job market. If wage inflation threatens, it's a good bet that interest rates will rise; bond and stock prices will fall. No doubt that the only investors in a good mood will be the ones who watched the employment report and adjusted their portfolios to anticipate these events. In contrast, when job growth is slow or negative, then interest rates are likely to decline - boosting up bond and stock prices in the process.


Importance
The employment situation is the primary monthly indicator of aggregate economic activity because it encompasses all major sectors of the economy. It is comprehensive and available early in the month. Many other economic indicators are dependent upon its information. It not only reveals information about the labor market, but about income and production as well. In short, it provides clues about other economic indicators reported for the month and plays a big role in influencing financial market psychology during the month. Additionally, the Fed has made 6.5 percent unemployment a threshold for considering changes in policy - both for quantitative easing and the fed funds rate. And the Fed has emphasized that it is overall labor market conditions that matter - not just a specific number.

Interpretation
The bond market will rally (fall) when the employment situation shows weakness (strength). The equity market often rallies with the bond market on weak data because low interest rates are good for stocks. But sometimes the two markets move in opposite directions. After all, a healthy labor market should be favorable for the stock market because it supports economic growth and corporate profits. At the same time, bond traders are more concerned about the potential for inflationary pressures.

The unemployment rate rises during cyclical downturns and falls during periods of rapid economic growth. A rising unemployment rate is associated with a weak or contracting economy and declining interest rates. Conversely, a decreasing unemployment rate is associated with an expanding economy and potentially rising interest rates. The fear is that wages will accelerate if the unemployment rate becomes too low and workers are hard to find.

Nonfarm payroll employment indicates the current level of economic activity. Increases in nonfarm payrolls translate into earnings that workers will spend on goods and services in the economy. The greater the increase in employment, the faster is the total economic growth. When the economy is in the mature phase of an expansion, rapid increases in employment cause fears of inflationary pressures if rapid demand for goods and services cannot be met by current production.

When the average workweek trends up, it supports production gains in the current period and portends additional employment increases. When the average workweek is in a declining mode, it probably is signaling a potential slowdown in employment growth-or even outright declines in employment in case of recession.

Gains in average hourly earnings represent wage pressures. It is worth noting that these figures aren't adjusted for overtime pay or shifts in the composition of the workforce, which affects wages on its own. Market participants believe that a rising trend in hourly earnings will lead to higher inflation. But if increased wages are matched by productivity gains, producers likely will not increase product prices with wages because their unit labor costs are stable.