US nonfarm payrolls grew by only 12,000 in October—the smallest gain since 2020—in a month plagued by hurricane impacts and labor strikes. The unemployment rate held steady at 4.1%, but today’s October jobs report also showed substantial churn, with household employment declining by 368,000 and 428,000 individuals leaving the labor force.

Hurricane and strike distortions to payrolls were expected; Federal Reserve Board Governor Chris Waller noted in a recent speech that these factors “may reduce employment growth by more than 100,000 this month.” The Fed is likely to look through the noise ahead of next week’s FOMC meeting on November 6-7.

On top of other data this week that underscored the economy’s recent strength, October’s jobs report showed wage pressures continue to moderate. Elevated wages and high productivity have supported household incomes and consumer spending, helping to propel growth. With solid data in hand but some uncertainty about the labor market given October’s disruptions, we view a 25bp rate cute next week as the FOMC’s most likely move.

Summary:

• October payrolls grew by a modest 12,000 jobs, reflecting the impact of hurricane disruptions and labor disputes, while the unemployment rate held firm at 4.1%.
• The report’s survey period coincided with the week Hurricane Milton made landfall, which came two weeks after Hurricane Helene. Boeing and other strikes also removed roughly 40,000 from payroll counts. These issues complicate the interpretation of this mixed bag of data.
• Household-reported permanent job losses jumped by the most since February 2024, while hurricane and strike disruptions contributed more directly to other spikes in work absences and cuts to hours.
• Compensation growth continues to slowly moderate toward pre-pandemic levels, while economic productivity remains well above past trend.
• We expect the Fed to closely parse through October’s noisy employment data ahead of the November 6-7 FOMC meeting.

Figure 1. Disruptions push payroll gains to lowest since 2020

Report Highlights:

Payrolls Hit by Disruptions

The 12,000 jobs added to US payrolls in October was the fewest since December 2020. Payroll gains for August and September were also revised down by 112,000 in total, for a final gain of 78,000 in August and 223,000 in September. While it is difficult to determine the extent of hurricane impacts before state-level detail is released, we assume that the impact on payrolls will reverse over the coming months.

Healthcare remained the primary job-creating sector, adding 51,300 workers in October. Federal and state governments also showed net new hiring, adding 40,000 workers largely to fill election staffing needs and conduct emergency storm response in the Southeast. Manufacturing recorded monthly job losses of 46,000; however, we assume that roughly 42,000 of those were directly related to strikes at Boeing and elsewhere. But employment in temporary help services also continued to fall, shedding 48,500 workers in October—losses that were likely not driven by one-time disruptions.

Despite the unemployment rate holding at 4.1%, the Household Survey showed substantial churn. Employment declined by 368,000 in October, while unemployment rose by 150,000 and an additional 428,000 workers left the labor force. While Household data was expected to be less disrupted than payrolls, it is unclear if the hurricanes or knock-on impacts from strikes affected job-finding in affected areas or are being reflected in individuals’ self-reported status.

Unemployment Mix Shows Jump in Permanent Job Losses

The rise in unemployed workers appears to be driven by permanent job loss, breaking from an encouraging trend over the past year. Unemployment rose by 150,000 in October—the most since July—and now stands more than 700,000 higher than at the end of 2023. New and returning labor market entrants continue to drive a significant portion of the increase in unemployed workers, with 108,000 re-entering the labor but unable find a job in October.

More concerningly, permanent job losses rose by 153,000 in October. This more-troubling category of unemployment had largely remained subdued throughout the period of rising unemployment going back to April 2023. That trend had fortified the “labor hoarding” narrative—which posited that a majority of companies were re-staffing up to adequate levels and then retaining their workers.

Figure 2. Permanent job losses jumped in October

As discussed below, hurricane disruptions made a clear mark on the Household Survey and it’s possible that some households inaccurately self-identified. However, a rise in permanent job loss would be consistent with JOLTS data released this week, which showed that layoffs through the end of September ticked up to 1.83 million—the most since January 2023. Layoffs also did not appear to be weather-impacted, with the Northeast Region showing a larger rise than the South.

Signs of layoffs and job loss will be key indicators to track ahead of November’s jobs report and we will get more clarity on state-level composition once data is available. Nonetheless, layoffs and unemployment remain low in historic terms, particularly when compared to past recessionary periods.

Storms and Strikes Create Noise

The two hurricanes that struck the Southeastern US had a clear impact on October’s data. The Household and Establishment Surveys were conducted from October 6 to 12; Hurricane Helene made landfall September 26 and Hurricane Milton followed on October 9. While it is difficult to ascertain their impacts on payrolls and household employment before state-level data is released, we find clear signs of the storms in absences and in involuntary part-time data (Figure 3).

Weather-related work absences jumped by 460,000 in October’s report, while an additional 975,000 typically full-time workers had their hours cut below 35 due to weather. These are large impacts but not of abnormal magnitude. Note that absences and part-time workers are counted as employed in the Household Survey, so these changes do not account for October’s employment decline.

Striking workers at Boeing and smaller employers also impacted the jobs data. BLS shows 42,000 additional workers on strike in October versus September, with roughly 33,000 coming from Boeing alone. Because striking workers and absent workers who are unpaid are excluded from Establishment payroll counts, it is likely that these factors combined to shave 100,000 or more from October payrolls. We expect these effects to reverse as storm impacts subside and union negotiations are finalized.

Figure 3. Storm-related absences and alterations cause noise

These weather-related spikes in the Household Survey confound the interpretation of October’s labor force and unemployment flows. The rise of 150,000 in unemployed workers may somewhat reflect issues with household reporting and self-identification amid the disruptions. Supporting this view, initial claims for unemployment insurance jumped by more than 100% in the first week of October in the hurricane-impacted states of Florida, Georgia, Tennessee, South Carolina, and North Carolina (Figure 4). However, those same states have actually seen a decline in continuing claims (a proxy for benefits dispersed) since that same week. These dynamics may indicate that the storms’ regional impacts have been less prolonged than expected.

We believe some portion of October’s reported permanent layoffs can be attributed to household reporting issues. It is possible that some individuals mistakenly reported themselves as unemployed or similarly filed an initial unemployment claim even though their companies did not let them go.

Figure 4. Unemployment claims spike after hurricanes, now retreating

Wage Pressures Continue to Slowly Moderate

Data this week showed that wage pressures continue to moderate as the Fed seeks to execute its last mile towards its 2% target. The Fed’s preferred measure, the Employment Cost Index (ECI), showed 3.8% year-on-year wage growth in Q3 for private-industry workers. Average hourly earnings growth for private workers had shown a similar convergence toward target, but picked up again in the past several months and now stands at 4.0% growth over the last 12 months.

Figure 5. ECI compensation and average hourly earnings continue to moderate

Fed officials are tracking wage growth closely now that the downward trend in average hourly earnings has halted. However, easing that pressure somewhat is booming productivity. Q3 GDP data released this week reflected implied annualized productivity growth of 3.2%, compared to a pre-pandemic trend of 1.4%. So, despite noisy October employment data, signs continue to point to a US economy close to sticking a soft landing—and a labor market that is strong for those already in the workforce but becoming a challenge for those seeking to enter at this stage.