Fourth-quarter unemployment will be below Fed’s forecast

The unemployment rate is arguably the most important statistic the Federal Reserve tracks as it assesses the risks to the employment side of its dual mandate. After a blowout payroll number, the decline in the jobless rate makes a 50bp rate cut in November unlikely.

What you will learn:

• The labor force flows data suggest the unemployment rate will average 4.17% in Q4, less than the Fed’s forecast for an end-of-year jobless rate of 4.4%. This reinforces our baseline view that the central bank will embrace a measured pace of rate cuts.
• Trend employment growth is estimated to be stronger than previously assumed due to the post-pandemic surge in immigration. Though immigration has peaked, along with its impact on labor force growth, new immigrants become more attached to the labor market over time, so previous immigrants will continue to support labor force gains.
• The end of the dockworkers’ strike takes the risk of a negative October jobs print off the table. However, the October employment report could still come in weak due to the Boeing strike and the fallout from Hurricane Helene.