October jobs report: Employers keep hiring, but unemployment rises
The white-hot US labor market is showing signs of cooling, with the Labor Department reporting Friday a slower pace of hiring and higher unemployment.
While the closely watched October jobs report was strong by historical standards, it suggests a series of rate hikes by the Federal Reserve meant to cool the economy has, as yet, had only a limited impact on employers’ desire to hire more workers.
The report shows employers added 261,000 jobs in October and the unemployment rate rose to 3.7% from 3.5% in September.
That’s a lower monthly jobs gain than the revised September number of 315,000, though it is above the 200,000 forecast from economists surveyed by Refinitiv.
October marks the smallest monthly jobs gain for the US economy since December 2020. But it is also a solid gain by historical standards. The economy added an average of 183,000 jobs a month over the course of the decade before the pandemic.
“Today’s stronger than expected report illustrates the difficult task that still lies ahead for the Fed wrestling a resilient labor market and sticky inflation,” said Mike Loewengart, head of model portfolio construction for Morgan Stanley Global Investment Office. “While the number may be disappointing for investors hoping for a dovish Fed sooner rather than later, keep in mind it was the lowest reading in nearly two years.”
Economists had expected a smaller rise in the unemployment rate, to only 3.6%. The unemployment rate is calculated using a separate survey of households rather than the employer survey used to count workers on the job.
The higher-than-expected unemployment rate is also still low by historical standards — September’s 3.5% reading matched a half-century low.
Federal Reserve Chairman Jerome Powell has warned that the economy may need to shed jobs as part of the central bank’s battle to tamp down the pace of economic growth as a way of combating higher prices. The continued strength in the labor market could leave the door open for the Fed to continue to hike rates at its upcoming meetings.
Several economists said Friday they think the Fed could slow the pace of rate hikes to a half-percentage point, rather than the three-quarters of a point increases it has been approving at recent meetings.
“The bottom line here is that the labor market is softening, but has not yet reached the point where the data are screaming at the Fed to stop tightening,” said Ian Shepherdson, chief economist for Pantheon Macroeconomics. “But if these trends continue, as we expect, markets will start to push the Fed — and especially Chair Powell — to rethink the idea of continued hikes next year.”
The jobs report was praised as good news by Labor Secretary Marty Walsh.
“Obviously, 261,000 jobs is great,” he told CNN in an interview Friday morning after the jobs report. However, he noted that while total employment is now above where it was before the pandemic, there are still some sectors, such as leisure and hospitality and public schools, where employment is not yet back to pre-pandemic levels.
But he acknowledged that even with the strong labor market, it’s high prices, not jobs, on the minds of most Americans.
“No matter how many jobs that I can get in front of this camera and tell you how we’ve added and how great they are, people are still feeling the struggle at the kitchen table,” he said. The Biden administration is working to address rising prices with its Inflation Reduction Act, he added.
In addition to employment totals, one other key metric the Fed focuses on is wage growth, since higher wages can create inflationary pressure by putting more money in the hands of consumers and driving up demand for goods and services.
The October jobs report showed a slowdown in wage gains, with the average weekly wage paid by businesses up just 3.8% from the 4.1% annual gain in September, and well off the gains of 5% or more seen earlier this year and during many months of 2021.
Even when wage growth was at 5%, that did not keep up with the pace of price increases being paid by consumers, which stood at an average of 8.2% in the most recent Consumer Price Index. The slower pace of wage increases in this report indicate that it will be even harder for American consumers to pay the higher prices.