US Watch - Hurricanes and strikes hit payrolls, underlying trend cooling

This was the first negative m/m change in private payrolls since December 2020. The only sectors still adding significant jobs are health care and the government, which have continued to provide steady job growth as the rest of the labor market has softened. The household survey showed a loss of 368k jobs, undoing most of last month's 430k. The month's data was impacted by hurricanes and worker strikes. The latter is visible in the data, with manufacturing employment decreasing by 46k, reflecting a 44k decline in transportation equipment manufacturing. The report also explicitly mentions that they are unable to isolate the hurricane effect from the numbers, although it is clear that it had an effect.

The unemployment rate held steady, mainly due to a small decline in labor force participation. The actual number of jobless increased by 150k. It is important to note that this is not a clean reading, due to the hurricanes and strikes. This large uncertainty also led to a wide range of forecasts (-10 to 180k), and it is near impossible to estimate a reasonable counterfactual, but it would likely be well above 100k. Next month is likely to show a partial reversal. This will be taken into account in the Fed's assessment as well, who will also be putting some weight on this month's hotter than anticipated inflation report, with in particular the preferred measure core PCE, coming in at 0.3% in September, the highest since April of this year. Given this and the special factors impacting the labor market report, we do not think the Fed will be considering a more aggressive response at the FOMC meeting next week. We continue to expect a 25bp reduction.