Fed rate cuts come after weak October 2024 wages

October 2024 payrolls were the weakest since December 2020. With only 12,000 new jobs added during the month, payrolls were virtually flat. While some of the slowdown could be due to recent hurricanes, it’s unclear how much of an impact those storms had on the data. But one thing is clear: the labor market has slowed down, and there are risks that the labor market will slow down even more. Federal Reserve members know this and will likely cut interest rates at their November and December 2024 meetings.

Weak October jobs report

Labor Force Situation Reportknown to economists and analysts as the jobs report, was weak for October 2024. It showed monthly net payroll gains of just 12,000, which were accompanied by very large downward revisions to payrolls of 112,000 over the past two Monday. At least the unemployment rate was unchanged at 4.1 percent, though the jobless rate was only unchanged because the labor force participation rate fell in October to its lowest level since June 2024 as people left the labor force.

While some of the weakness in the October jobs report could be due to the aftermath of Hurricanes Helene and Milton, it’s unclear how much. The US Bureau of Labor Statistics explicitly noted in the report that “Wage employment estimates in some industries are likely to have been affected by the hurricanes; however, it is not possible to quantify the net effect on the month-over-month change in the national level. estimates of employment, hours worked or income, as the establishment survey is not designed to isolate the effects of extreme weather events.”

While October’s jobs report is likely to fuel recession fears and undermine the claim that the US labor market is solid, other recent data points to solid labor market dynamics and growth.

Initial and continuing unemployment claims are very low. Continuous claims are 1.862 million, which is only about 1.1% of the workforce. Initial jobless claims are also very low, at just 216,000 in the latest weekly report on October 31.

Survey data on strong job openings and labor turnover showed that there were over 7.4 million job openings in September 2024. While this figure is about 4.8 million jobs less than the March 2022 all-time high of 12.2 million, 7.4 million jobs still represents about 400,000 more jobs than before the COVID pandemic. With a gap of more than 5.5 million open jobs versus people collecting unemployment, it is difficult to expect very large net wage losses for several months any time soon.

Signs that the US labor market or economy has slowed are getting more attention. However, U.S. economic growth momentum has been solid, with third-quarter 2024 Gross Domestic Product up 2.8% and the latest Atlanta Fed GDP on Oct. 31 showing fourth-quarter GDP of 2024 will probably be 2.7%.

ForbesSolid US GDP growth is unlikely to prevent the Fed from cutting interest ratesOf Jason Schenker

Fed Implications of October Jobs Report

October’s jobs report is likely to light a fire under members of the Federal Open Market Committee of the Federal Reserve to cut interest rates further at its upcoming meetings in November and December.

The Fed has a dual mandate to support full employment and to keep inflation rates low and stable. The slowdown in payrolls in October’s jobs report points to notable weakness, while September’s PCE report showed headline PCE inflation slowing year-over-year to just 2.1%, which is very close to the Fed’s 2% target.

ForbesHeadline PCE inflation is nearing the Fed’s 2% targetOf Jason Schenker

Taken together, slowing payrolls and slowing year-over-year consumer inflation rates could give the Fed the go-ahead to cut interest rates on Nov. 7. 0.5%, despite the fact that hurricanes may have contributed to wage weakness.

Additionally, despite the Fed’s focus on balancing inflation and jobs data, it is possible that the outcome of the November election — or uncertainty about that outcome until November 7 — could push the Fed to cut rates by 0.5%

ForbesUncertainty about the outcome of the US presidential election could affect the marketsOf Jason Schenker

Market Implications of the October Jobs Report

Even though the hurricanes hurt payrolls in October, the jobs report is likely to be a warning sign that the Fed cannot delay interest rate cuts. In addition, this report will likely increase the chances of a 0.5% interest rate cut on November 7, which is likely to weigh on the dollar and bond yields.

However, stocks could experience mixed trading dynamics based on a report that is weak enough to give the Fed a reason to cut interest rates more significantly.

ForbesThe Fed just cut interest rates, and more rate cuts are to comeOf Jason Schenker

What do you think of the October 2024 jobs report?

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