[News] Has the U.S. Labor Market Truly Deteriorated Amid the Sharp Decline in Nonfarm Payrolls?

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The recently released U.S. nonfarm payroll data showed unusually weak growth, raising questions in the market. Will this lead to an adjustment in the Federal Reserve’s policy trajectory? Is there evidence of a genuine deterioration in the U.S. labor market, or are there other contributing factors?

The U.S. nonfarm payroll increased by only 12,000 jobs in October, a sharp decline of 211,000 from the previous month and well below the market expectation of 110,000. The unemployment rate remained at 4.1%, consistent with the prior month.

 

Why did this month’s nonfarm payroll decline so significantly?

This significant decline can largely be attributed to the impact of Hurricane Milton, the Boeing strike, and BLS’s survey methodology. According to the BLS, its establishment survey only counts individuals who received a paycheck during the week of the 12th each month as employed. In contrast, the household survey counts individuals as employed even if, due to weather disruptions or leave, they did not receive a paycheck in that specific week.

Hurricane Milton made landfall in Florida on October 9, coinciding with the establishment survey period. Therefore, individuals who were unable to receive a paycheck in the week of October 12 due to work stoppages caused by extreme weather were not counted as employed, which is a primary reason for the substantial drop in October’s nonfarm payroll numbers.

 

Is Weather the Primary Factor Behind Weak Employment Data?

Other data supports this explanation. First, the household survey counted those who had a job but were unable to work due to adverse weather. The number of individuals who could not work due to inclement weather reached 512,000 in October, an increase of 460,000 from the previous month and the highest figure since January this year.

Additionally, ADP reported a 233,000 increase in private-sector employment for October. ADP considers all employees with payroll records during the month as employed, so even if individuals missed a paycheck during the week of the 12th due to work stoppages, they were still counted if they received pay in other weeks. This difference in definition is a primary reason for the disparity between ADP’s and BLS’s data.

 

Moreover, the Boeing strike may have also affected this month’s nonfarm employment data. Manufacturing employment in October fell by 46,000, with employment in transportation equipment manufacturing down by 44,400, likely reflecting the 33,000 workers impacted by the Boeing strike.

Overall, although October’s nonfarm employment figures showed a significant decline, this was largely driven by short-term factors. However, other indicators suggest that the labor market is still cooling. U.S. job openings have dropped to their lowest level in nearly three years, and voluntary quits have fallen to their lowest level since June 2020, indicating that labor demand from companies is waning, though no marked deterioration has yet occurred.