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Regardless of how noisy the October jobs data is, the trend since the start of the year shows a cooling labor market.
Investors now have to reconcile that with the reality that inflation remains stickier than most would like.
- Core PCE 2.7% for 3 months in a row.
- Real wages are >1% for 3 months in a row.
One unknown not talked about is the impact of the election hiring.
- Over 1 million full-time jobs have disappeared in the past 12 months.
- Even part-time workers have declined back to levels at the start the year.
The labor force is only slightly higher than it was at the start of the year (+1.4% y/y vs. the historical average if 2.0%).
Further, prime age participation (age 25-54) is back to where we started the year.
- CEOs have talked about the election bottleneck on earnings calls (Delta, Citi, etc.).
- It's showed up in small business optimism and the beige book.
We have officially stalled out.
The question becomes, does the post-election period open the hiring spigot?
It will likely take time to know.
- In the meantime, the Fed has to make monetary decisions.
The Fed is in a tough position. Inflation is sticky and the job market looks weak, but could potentially improve.
If they cut 50 bps in September to address the weaker job market then today's report should support a 25 cut in November. The market agrees.
The bigger question becomes, where do rates go in 2025?
My guess is they remain elevated as the economy picks up, the labor market recalibrates and inflation remains sticky.
Related: September Jobs Report Confirms Soft or No Landing Economic Scenario