Why the October jobs report on Friday could ruin the market’s view of a soft landing

• The September jobs report beat expectations, but economists forecast weak growth for October.
• Even with lower expectations, a bad print could upend the market’s view of a soft landing.

The narrative of continued labor market strength has resumed with September salary reportwhich exceeded economists’ expectations by more than 100,000 jobs. But that could change Friday when the Bureau of Labor Statistics releases new jobs data.

Expectations for total jobs in October are already relatively low, at around 110,000-120,000. Economists and investors are discounting the impact that Hurricanes Milton and Helen, as well as the ongoing strike at the Boeing plant, are likely to , will have an impact on the number of jobs.

But even after accounting for those extraordinary events, some experts say the weak, below-consensus figure could undermine the prevailing view that the Fed’s rapid rate cuts slowed inflation without plunging the economy into recession territory – a so-called soft landing.

“If you get 50,000 or less, even with those potential glitches, that would again raise some concerns about a slowdown,” Tom Essay, founder of Sevens Report Research, told Business Insider. “It also really flies in the face of the idea that there won’t be a shutdown, that the economy won’t slow down at all. So I think it will move the markets.”

Ben McMillan, CIO of IDX Advisors, said the same about employment numbers, which are well below consensus, especially given how much investor sentiment about a soft landing has shifted upward over the past month.

“This may be a situation where a lot of investors are saying to themselves, ‘OK, maybe the economy isn’t as resilient as we thought,’ things may be more prone to slowing down, and so investors are revising their risk forecasts accordingly,” McMillan. told Business Insider.

Goldman Sachs estimates that hurricanes will reduce the number of jobs added by 40,000–50,000, meaning that the potential number of 200,000 jobs would theoretically be reduced to 150,000–160,000. Pantheon Macroeconomics says the impact is likely to be about 25,000 jobs. As for strikes at Boeing and other firms, the Bureau of Labor Statistics itself estimates that they will reduce job growth by 44,000.

But while various surveys of economists show muted expectations for October, some warn there is a possibility that job gains could be below the consensus of 110,000 to 120,000. Goldman is just below that with a forecast of 95,000, while Comerica is much lower at 30,000. Former Fed economist Claudia Sam thinks the results could even be negative.

The print run will be below 100,000 copies for the first time since 2020.

However, due to hurricanes and strikes, it is unclear where the threshold of concern lies for investors who shy away significantly from the decline. Michael Cugino, president and portfolio manager of the Permanent Portfolio Fund family, told Business Insider on Monday that investors may be quick to shrug off the bad numbers due to the temporary factors listed above. Plus, they might even welcome the possibility of more significant rate cuts from the Federal Reserve, he said.

Bill Adams, Comerica’s chief economist, said in a note this week that while his expectations are very low, investors shouldn’t jump to conclusions.

“The October jobs report will likely show severe but short-term damage from Hurricanes Helen and Milton,” Adams said. “The report will tell us little about trends in the economy.”

However, October’s headline numbers aren’t the only part of the report that could upend expectations. There is some evidence that the 254,000 jobs added in September could create a false sense of confidence in the strength of the economy, said Neil Dutta, chief economist at Renaissance Macro Research.

First, the response rate to the BLS wage survey this year was extremely low, meaning revisions in subsequent months were larger, he said.

And while there’s no guarantee what will happen with the September data, 75% of changes over the past 12 months have been negative, according to economist David Rosenberg. Rosenberg said in an Oct. 9 post that ADP’s payroll report is a more reliable survey to watch, and the company’s estimate for new jobs in September was 143,000.

Another sign that September’s employment figures may have been overstated is that other employment indicators have not started to improve.

“There’s really not a lot of evidence that the labor market picked up significantly in September,” Dutta said in an Oct. 28 video. “If you look at the PMI data, the employment components of both the manufacturing and (services) PMI remain below 50.”