Regional Fed Surveys Signal a Better, But Still Modest, October Jobs Report
Services firms stepped up hiring in October, while factories pulled back.
My combined gauge climbed, but it hasn't broken out of its post-2022 range.
Friday's jobs report may beat a low bar, but it's likely to trail the seasonal norm.
Hiring found a little more traction this month...
This week brings the next big test for the U.S. economy. The U.S. Bureau of Labor Statistics ("BLS") releases its October jobs report. Economists are looking for 65,000 new jobs. That's roughly a third of the 202,000 jobs the economy has typically added in October since 2015. It's also almost identical to the 68,000 monthly average we've seen this year...
October hiring tends to trail the 227,000 average monthly gain by a bit. Heading into September's report, the Fed surveys flagged weakness, and the BLS posted a gain of only 29,000. This month, the surveys tell a slightly better story. This week's print could edge past expectations, but it's still likely to fall short of what October normally delivers.
In other words, the labor market is finding its footing, not picking up speed. The Fed left the federal funds rate target range unchanged at 3.75%-4.00% last week, though two members wanted a hike. One weak jobs number won't decide the December policy outcome. But it won't push the Fed toward a more aggressive path, either. That backdrop still favors a slow and steady long-term rally in the S&P 500.
But don't take my word for it, let's look at what the data's telling us...
Every month, a handful of regional Fed banks poll local manufacturers and service providers about business conditions. I track the hiring and price measures from four districts: Dallas, Kansas City, New York, and Philadelphia.
Together, they cover about a third of the U.S. economy.
Their results arrive before economic numbers like the BLS jobs report.
They give investors an early look at where the national data is headed.
This time, the focus is hiring. I'll walk through each sector first, then pull them together for the big picture.
Let's begin with factories...
The chart above shows how manufacturing hiring has trended since 2019.
My gauge dipped to 8.9 in October from 10.3 in September, the softest reading since May.
Still, it sits above every reading from 2023 through 2025.
Services, which drive most U.S. jobs, finally turned higher...
My services gauge jumped to 2.8 from 0.2 in September.
That ended three straight monthly declines and was the strongest result since July.
Even so, it's less than half of June's 6.3 reading.
To see the whole picture, I blend both sectors into one gauge. Services get an 80% weight and manufacturing gets 20%, which mirrors how U.S. jobs are split. Each district is also weighted by its share of GDP...
Overall hiring firmed in October.
The combined index climbed to 3.5 from 1.3 in September.
That still leaves it roughly within the band it's held since late 2022.
Next, let's line up my combined gauge against nonfarm payrolls to see how the two track over time. I use a three-month rolling average here to filter out the noise and spotlight the trend...
Historically, the Fed surveys have moved ahead of the national jobs data.
As I expected last month, the rolling average slipped to 2.2 from 2.8 once July's strong reading rolled off.
The trend points to job growth that's steady but unspectacular.
Here's what it all adds up to: hiring got better in October, but not enough to change the story. Service providers added workers, factories backed off, and my combined gauge stayed in the same lane it's traveled for nearly four years. If Friday's BLS data lines up with that indicator, job growth will keep running well under its historical pace.
That's where interest rates come in. Markets are leaning toward a December hike, and a small beat against low expectations doesn't make that case on its own. The Fed wants to keep inflation in check, but not at the cost of a labor market that's only holding steady. Tightening too much into that kind of backdrop risks doing more harm than good to growth.
When the dust settles, the Fed may still deliver one more hike before year-end to protect its credibility. But if policymakers can stay patient, they may have room to lower rates once more before the end of 2027. That would give the economy some breathing room and help keep the S&P 500's long-term rally intact.
Five Stories Moving the Market:
Apple forecast lower gross margins for the crucial holiday quarter, citing rising memory-chip costs, and projected services revenue growth that fell well short of Wall Street expectations – Reuters. (Why you should care – while it is not uncommon for Apple to keep its outlook tempered, the lack of guidance around supply constraints may stoke investors’ concerns around profitability)
Software developer Palantir Technologies said that it expects revenue of roughly $2.65 billion in the three months ended December 31, compared to Wall Street’s expectation for $2.46 billion; the company raised its annual revenue forecast to $8.53 billion, solidly surpassing the $8.2 billion average analyst estimate – Bloomberg. (Why you should care – commercial segment sales surpassed the same government sector metric for the first time in the company’s history)
The U.S. attacked Iran’s Qeshm Island, according to U.S. officials, in the latest of a series of limited strikes Washington has secretly carried out against the country in recent weeks – WSJ. (Why you should care – Iran’s Revolutionary Guard Corps is said to house an underground missile site, naval drones, mines, and small attack craft on Qeshm Island for harassing ship traffic through the Strait of Hormuz)
Oracle is poised to price the sale of $10 billion in shares at an 11% discount; the equity sale comes as the company sold $10 billion of bonds in five tranches, with maturities ranging from three to 20 years – Bloomberg. (Why you should care – the share sale could heighten investor worries that companies could increasingly turn to dilutive share sales for financing)
Business demand for bank loans weakened last quarter for the first time in more than a year, according to a Federal Reserve survey; banks cited decreasing customer investment in plant or equipment products and customer borrowing shifting to more attractive bank or nonbank funding sources – Reuters. (Why you should care – banks said demand for commercial real estate and auto loans eased while credit card borrowing rose)
Economic Calendar:
Earnings: PFE, ETN, MPC, APO, AME, KDP, WAT, YUM, SYY, ADM, EXPD, FISV, BR, DD, RVTY, ZBRA, LDOS, BALL, IT, PNW, HSIC, APTV, AMD, AMGN, ANET, BKNG, XYZ, AIG, PRU, SMCI, IFF, AIZ, SWKS, JKHY, MOS, AES
Japan - Markets Closed for Culture Day
Switzerland - CPI for October (2:30 a.m.)
U.S. - JOLTS Job Openings for September (10 a.m.)
U.S. - Factory Orders for September (10 a.m.)
Treasury Auctions $100 Billion in 6-Week Bills (11:30 a.m.)
U.S. - American Petroleum Institute Crude Oil Inventory Data (4:30 p.m.)
New Zealand - Unemployment Rate for Q3 (4:45 p.m.)
China - S&P Global Services PMI for October (8:45 p.m.)
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