US labor market conditions likely improved considerably in October

Government statisticians are expected to report not only that payroll employment growth quickened in October, but also that the civilian jobless rate slipped to a level last seen in early 2008. The model estimates that non-agricultural concerns hired 220K net new workers this month, besting the admittedly tepid 139K average gain over the August-September span. Fundamental and technical factors underpin the call for a significant pickup in job growth in October. 

The average number of persons filing initial claims for unemployment insurance contracted by 9K to an expansion-low 264K over the five weeks leading up to the October canvassing period-implying that the pace of layoffs has slowed considerably since September. Consistent with the notion that the previously unemployed are indeed finding work, the number of persons on regular state benefits contracted by 100K to a 15-year low of 2.14 million during the period ended October 17. Unusually warm temperatures during the first half of the month, together with atypically dry conditions across the continental US, are expected to provide a lift to hiring in a variety of industries during the reference period. Finally, the BLS' estimated seasonal adjustment factors likely will be far less harsh than the mean 749K-job haircut utilized over the 2010-14 span. 

Prior-month revisions may once again have a material impact on market participants' appraisals of this week's report. Over the past 15 years, the BLS has generally underestimated the change in nonfarm payrolls over the August-September span only to make upward adjustments with the October report. Indeed, since 2000, the mean cumulative revision included with the October release has been 44K and an even-heftier 77K over the latest five years. If the statistical model's in-sample estimates are reliable guides, we should see the currently estimated 278K jobs added in August and September marked significantly higher.