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What to Expect From October US Non-Farm Payrolls

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Yesterday, the Fed announced their taper in line with expectations, right down to downplaying the potential for a hike coming soon.

They did acknowledge that inflation was a problem though. This means that the markets’ attention is likely to return to the underlying drivers of inflation, including the development of employment.

The US employment situation is difficult, as even the Fed acknowledged.

In fact, that difficulty could continue, and show in the latest data. Even though there is a consensus that job creation picked up last month, it’s likely to remain relatively muted. That’s higher than in pre-pandemic times, but still, well below what we’d expect in a “fast recovery”.

With a continuation of recent trends in employment, the relative certainty could help support the increase in risk appetite we saw following the Fed’s meeting.

What to look out for

In its latest report, the BLS said there was a slight decrease in open jobs to 10.4M, while total job seekers were just over 8M.

What might have gone unnoticed in the report is that quits reached a record high, while layoffs reached a record low. There were 6.3M hires, and 6.0M separations, with those being mainly people quitting their job.

The implication appears to be that most of the job changes are related to people seeking higher-paying jobs, while others simply aren’t returning to the workforce.

However, the key metric for the Fed, the employment to population ratio continued to rise. It most recently registered at 58.7, up from 58.5. This is a slight change, but it’s now above where it was for the first half of the 2010 decade.

National-level measures to address the employment issue face an additional hurdle considering the disparity between the states in employment. Specifically, California and Nevada had an unemployment rate of 7.5% in the latest report, compared to just 2.0% in Nebraska, and 2.4% in Utah.

The figures and the likely reaction

A normal “good” NFP result is generally around the 200K level.

Economists estimate that 800K on average would be necessary for a recovery in the economy by the middle of next year. Results below that level will increase the window for when the Fed might raise rates. Additionally, this could also contribute to inflation expectations.

Analysts anticipate the October NFP to come in at 450K compared to 194K in the last reading. That’s a substantial miss that would put the number close to 200K. And this would contribute to a drop in bond yields.

Value stocks might be under pressure while supporting tech stocks. On the other hand, a substantial beat would likely put some more tailwinds behind risk appetite. In turn, this would weaken the dollar further.

The unemployment rate could tick down a decimal to 4.7% from 4.6%, despite a projected increase in labor force participation. Lastly, average hourly earnings may continue to accelerate at 4.9% from 4.6% prior.

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