No October Surprise in the Jobs Report

“Unchanged.” That is how the Bureau of Labor Statistics (BLS) described October’s total nonfarm payroll employment and unemployment rate. Given payrolls were far below consensus estimates—and slowed sharply from September—you might expect a similarly sharp reaction in headlines. But the main response to the weakest nonfarm payroll rise in almost four years? Interestingly, pretty evenhanded. To us, that indicates some broad-based and rather rational optimism—worth keeping in mind when assessing how expectations square with reality.

October nonfarm payrolls rose by 12,000, far short of FactSet’s expectations of 112,500 new jobs.^[i] Yet estimates varied greatly among research outfits—some predicted a 180,000 gain, while others expected “the first negative jobs print since December 2020.”^[ii] The reasons for the wide-ranging forecasts and flattish October reading were well known: Hurricanes Helene and Milton and an ongoing labor strike at a major aerospace manufacturer. The BLS included a special section discussing the hurricanes’ effect, noting the response rate for the establishment survey (i.e., the payroll side) “was well below average.”^[iii] Subsequent revisions will likely provide more color about the extent of the storms’ disruptions to local and regional jobs markets. But nothing here was shocking, and many commentators warned ahead of the release that October’s jobs data would be noisy.

To us, it is telling most mainstream coverage acknowledged why October’s reading was so weak. The month was weird due to some well-known one-off developments, and many noted last month’s numbers didn’t override the longer-term trend of fairly normal, prepandemic-like job growth. Contrast that with a couple years ago, when a phenomenon known as the Pessimism of Disbelief (PoD) was rampant. Back in September 2022, about a month before the global bull market began, the common view was that August’s nonfarm payrolls’ gain of 315,000 was actually bad news because it meant allegedly bad Fed rate hikes. Or see last year when commentators were fretting about “underemployment,” a tacit admission the labor market was fine, though it could supposedly be “better”—signaling dire pessimism had improved to persistent skepticism.

Now? The worst payrolls print since December 2020 elicited a sensible response: Major storms and strikes disrupted things, but they didn’t create new job market challenges. Rather, analysts largely view October as a one-month hiccup that likely reverses in November.

Look, today’s evenhandedness seems sensible. But one reading—strong, weak or skewed by one-offs—doesn’t tell the whole story. It is just one data point, and when trying to understand the broader backdrop, the longer-term trend matters more.

For investors, we think the near-universally upbeat response to October jobs highlights an important lesson: When the consensus excuses an objectively poor headline reading, dig into why. Are economists pointing out sensible reasons for the weakness? We think that is the case for October’s jobs report. Or are irrational far-flung hopes driving the excuses? That tends to be the case when optimism and greed start blinding folks to weak spots.

To be clear, recent optimism isn’t unfounded, especially as economic growth has been more resilient than appreciated this year. But the broader improvement in moods is also reason to watch out for complacency. The more investors become complacent, the easier it becomes to overlook negatives—a development worth monitoring when assessing the state of sentiment.