🎈 Up Big Today: Find today's biggest gainers (some over 50%!) with our free screenerTry Stock Screener

NFP Preview: Who's Afraid of a Negative Payroll Print?

Published 10/31/2024, 10:04 AM

Jobs Day will likely be messier than usual with recent hurricanes and a strike weighing temporarily on payrolls. Even with solid underlying growth, the headline could look rough.

Today’s post previews Friday’s Jobs Day and explains why the headlines might be misleading. Specifically, temporary factors may weigh down the payroll estimates in addition to the usual noise in the data.

Lots of Noise in Payrolls.

Fed Governor Chris Waller recently shared his view on the distortions to October:

I will be looking for more evidence to support this outlook in the weeks and months to come. But, unfortunately, it won't be easy to interpret the October jobs report to be released just before the next FOMC meeting. This report will most likely show a significant but temporary loss of jobs from the two recent hurricanes and the strike at Boeing.

I expect these factors may reduce employment growth by more than 100,000 this month, and there may be a small effect on the unemployment rate, but I'm not sure it will be that visible. Since the jobs report will come during the usual blackout period for policymakers commenting on the economy, you won't have any of us trying to put this low reading into perspective, though I hope others will.

That’s a substantial distortion that could mask what would otherwise be a ‘good news’ report and make it look decidedly ‘bad news.’ Moreover, seeing an October set up for our first negative payroll estimate in a while is not hard.

Let’s start by assuming that the underlying pace of payroll gains is back to its 2017-19 average of 183,000 per month. (The dark blue bar on the left below). Setting aside the hurricanes and Boeing (NYSE:BA) strike, the initial estimates are always imprecise. (See my earlier post on statistical confidence.) The 90% confidence interval based on survey sampling error is +/- 130,000. (The light blue bars.) So, even if payrolls were on trend, the estimate range could be large.Negative Payroll - Solid Trend

The orange bars to the right subtract 100,000 off the trend for Hurricanes Helene and Milton and the Boeing strike. When the confidence interval is added, the 90% lower bound is almost -50,000. A negative print would ruffle some feathers, but at least in this example, it could be consistent with a solidly growing labor market.

Noise, especially in initial monthly prints, is nothing new. In the three years before the pandemic, about 10% of the months had prints below 100,000, and one in September 2017 had a negative print. Note that was the same month as Hurricanes Harvey and Irma.

Monthly Changes in Payroll

Negative payroll prints are not uncommon, even in good economic times. The October 2024 print is a good candidate for one, given the extra factors from the hurricanes and the strike. A low print alone does not mean the labor market is slipping. Other parts of the release and outside data will help unpack the headline.

Keep an Eye on the Unemployment Rate

The employment report will be messy, but that does not mean we can’t learn anything. For example, a move in the unemployment rate—consensus is flat at 4.1%—would be less likely due to distortions from the hurricanes or the Boeing strike than payrolls would be. A softening in labor market conditions is possible, given that the hiring rate remains well below its pre-COVID average.Hiring, Quits, and Layoff Rates

As I explained before, the low hiring rate is likely putting upward pressure on unemployment. So, a notable increase in unemployment in October would be a setback in the stabilization narrative.

Note that the Sahm rule will turn off—falling below the 0.50 threshold—if the unemployment rate holds steady at 4.1%. It will also turn off if the rate rises by only one-tenth percentage point since the low in the 12-month look-back window is rising. The Sahm rule turning off would mark the first episode since the late 1960s for it to trigger on and off without a recession. It does not say anything about the chances of a future recession but underscores how unusual this period has been.

In Closing

All eyes remain on the labor market, but October will likely be tough to watch. More than ever, we must read through the details carefully.

Beware of the scary headlines.

Original Post

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.