Expect the unexpected in Friday’s jobs report

(CNN) — The barrage of economic data released so far this week has painted a pretty clear picture: Growth is rock solid, and inflation is all but tamed.

In any other month, the finishing touch would be a clean reading on the labor market from the official jobs report.

However, it’s entirely possible that Friday’s employment data, set to be released at 8:30 am ET, could be downright abstract.

The impacts and ripple effects of two major hurricanes and several labor strikes (including a massive one at Boeing) are expected to weigh heavily on the October employment numbers.

Economists’ crystal balls are cloudy, and estimates for the headline number vary widely, with some saying the economy could even have lost jobs last month. However, a common thread among economists is that the strikes and hurricanes could take a 100,000-job bite out of the October jobs report.

As of Thursday morning, FactSet consensus estimates were for a net gain of 117,500 jobs in October. That would mark a sharp drop-off from the surprisingly strong preliminary estimate of 254,000 jobs added in September. The unemployment rate is expected to hold steady at 4.1%.

Data distortions are never ideal, but having an expectedly messy jobs report land just days before a consequential election and a pivotal Federal Reserve meeting is particularly prickly.

“We wanted to be able to say something about, ‘Are things getting weaker, or are they holding in a good place?’” Claudia Sahm, chief economist at New Century Advisors, told CNN in an interview. “It’s going to be really tough — not impossible — but it is going to be tough on Friday to be able to say that with any conviction.”

Underlying trends

To this point, the labor market has shown continued resilience and stability.

Job gains have slowed (as has been expected) from the gangbuster days of the pandemic recovery; but despite the dual pressures of fast-rising prices and inflation-fighting high interest rates, the job market hasn’t collapsed.

That’s not to say there hasn’t been some concern, especially after monthly totals for July and August came in lower than expected. There was a bounce-back in September, but plenty of questions remain as to how much that strength will stick.

Hiring activity has slipped, employees aren’t quitting their jobs as freely as before and job openings rates are mirroring those seen in 2018 and 2019, according to the latest Job Openings and Labor Turnover Survey from the Bureau of Labor Statistics.

Still, despite the overall cooling trend, the job gains in recent months have started to become more broad-based across the economy.

Layoffs have remained muted and continue to do so. The number of people who applied for first-time unemployment benefits fell by 12,000 to 216,000 for the week ending October 26, according to Department of Labor data released Thursday morning. Economists polled by FactSet expected initial claims to fall slightly to 227,000 from the prior week’s revised level of 228,000.

The number of people continuing to receive unemployment benefits also declined, falling by 26,000 to 1.86 million for the week ending October 19. Economists were expecting continuing claims to rise to 1.94 million.

Also on Thursday, the latest job cuts report from Challenger, Gray & Christmas showed that layoff announcements dropped nearly 24% in October from September (but were 4% higher than a year ago).

Separately, new data released Wednesday by payroll processor ADP seemed to indicate that the jobs market remained on solid footing. Job gains in the private sector soared in October, according to ADP (whose methodology differs from how the BLS calculates striking and weather-affected workers … more on that later).

A boatload of unkowns

There are a few knowns and a boatload of unknowns in the shocks that could distort October’s payroll numbers.

What’s known: Striking aerospace machinists, hotel workers and video game voice actors are expected to reduce the October employment counts by at least 44,000 jobs, according to the BLS’ latest strike report.

On October 11, Boeing, which has the lion’s share of striking workers, announced plans to cut its workforce by 10%, or 17,000 jobs. Based on the timing of that announcement alone, none of those cuts will detract from October’s employment tally.

What’s unknown: Businesses don’t operate in a vacuum, so if operations dwindle or grind to a halt without their workers, that will ripple through to other firms.

The Boeing strike, for example, has potentially resulted in 5,000 to 7,000 layoffs at non-Boeing companies in Washington and Oregon, but it’s hard to know the full extent, Joe Brusuelas, chief economist at RSM US, told CNN.

The biggest unknown will be the impact from the hurricanes. The last time there were back-to-back major hurricanes — Harvey and Irma in 2017 — the forecasts for the following month’s jobs report were for a loss of 33,000 positions.

That September 2017 reading was later revised upward once more information had been obtained. In addition to the direct and devastating impacts that keep people out of work, weather events also impact the BLS’ ability to collect data from businesses and households.

“In a hurricane, the top priority is not sending your numbers into BLS,” Sahm said. “The estimates in a natural disaster tend to get more imprecise.”

The timing of Helene’s and Milton’s respective landfalls, however, could mean a massive or even minimal impact to the October jobs report, economists tell CNN.

The methodology behind the madness

The monthly jobs report is composed of two surveys: one of non-farm businesses and entities about employment, hours, and earnings; and the other of households to obtain the labor force status of individuals as well as demographic details.

And each contribute to two of the biggest numbers in the monthly jobs report. The monthly payroll numbers are drawn from the business (establishment) survey while the unemployment rate is generated from the household survey data.

A key date to keep in mind for the jobs report is October 12, as it anchors the “reference period” for both surveys. However, this is where it also gets complicated.

In the establishment survey, the reference period is the pay period that includes the 12th of the month. If an employee worked and received pay for any part of that period (which could be one or multiple weeks, depending on the firm), they will be counted as employed.

In the household survey, the reference period is typically the calendar week that includes the 12th of the month; however, people who miss that week of work for weather-related events are counted as employed (regardless of pay). The household survey does include data on people who are out of work due to bad weather.

As such, even though the household survey is typically considered the more volatile of the two, how much or how little the unemployment rate shifts could provide a true indicator of how the underlying labor market is faring, Sahm said.

Going back to the establishment survey and its timing, it’s possible that the hurricanes might not have as much of an impact as some have feared, said Oliver Allen, senior US economist at Pantheon Macroeconomics, told CNN.

Applications for first-time unemployment benefits spiked in the weeks following Helene’s landfall in late September but came back down during the reference week, he said. Also, Milton hit late on October 9, meaning that anyone who worked between Sunday, October 6 and Wednesday before the storm would be counted as employed, he added.

“But we could be surprised,” he said.

Pantheon’s current estimate is for a 100,000 net payroll gain.

Bracing for a political fallout

At a time when economic data has become increasingly politicized, Democrats are bracing for a weak jobs report and the potential for Republicans to use the data as campaign fodder in the final stretch of the race.

While the weaker data is expected, White House and Harris campaign officials acknowledge the potential for Republicans to seize on any downtick, especially after recent weeks in which Vice President Kamala Harris has been chipping away at former President Donald Trump’s lead on the economy. A poll conducted last week by The New York Times and Siena College found Harris has cut Trump’s lead on handling the economy to 6 points from a 13-point lead in September. One-third of likely voters said the economy or inflation were their top issue.

Harris advisers are optimistic that, with just a couple of days left in the presidential race, voters are less likely to be moved by a single data point than they are by messaging.

“We’re just so close to the election now,” one Harris adviser told CNN. “The more exposure there is to the economic issues and the economic contrast, that works to the Vice President’s favor at this point.”

The broader economic backdrop is one of startling resilience. The US economy grew 2.8% in the third quarter, driven by continued strong consumer spending; consumer confidence soared to its highest reading since March 2021; and gas prices, a pain point for the Biden administration for years, have fallen below $3 a gallon in several states.

But, for voters, inflation that’s raised the cost of everyday goods dramatically in the last four years has continued to cast a cloud over voter sentiment, along with the spiraling cost of housing and interest rates at a 23-year high. A poll conducted by the Associated Press found 7 in 10 respondents suggest the economy is on the wrong track.

“Prices are still too high for too many people, for too many products, too many households,” said Jared Bernstein, President Joe Biden’s chief economist. “They still remember what things used to cost.”

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CNN’s Kayla Tausche contributed to this report.