The white-hot U.S. labor market showed signs of cooling, with the Labor Department on Friday reporting a slowing pace of hiring and a rise in the unemployment rate.
While the closely-watched October jobs report was strong by historical standards, it suggested that a series of rate hikes by the Federal Reserve aimed at cooling the economy has so far had limited impact on employers’ desire to hire more workers.
Employers added 261,000 jobs in October and the unemployment rate rose to 3.7% from 3.5% in September, the report showed.
Although it was above the 200,000 forecast by economists polled by Refinitiv, the monthly job growth was lower than the revised 315,000 in September.
October was the U.S. economy’s smallest monthly job gain since December 2020. But it’s also a respectable increase by historical standards. In the decade before the pandemic, the economy added an average of 183,000 jobs a month.
“Today’s stronger-than-expected report suggests that the Fed still faces the tough task of challenging a resilient labor market and sticky inflation,” said Mike Loewengart, head of model portfolio construction at Morgan Stanley’s Global Investment Office. “While this number Investors hoping for an early dovish Fed may be disappointed, but keep in mind that this is the lowest level in nearly two years.”
Economists had expected the unemployment rate to rise by a smaller 3.6%. The unemployment rate is calculated using a separate household survey, not the employer survey used to calculate working people.
The higher-than-expected unemployment rate also remains low by historical standards — the 3.5% reading in September matched a half-century low.
Federal Reserve Chairman Jerome Powell has warned that the economy may need to cut jobs as part of the central bank’s battle to curb the pace of economic growth in response to rising prices. Continued strength in the labor market could open the door for the Federal Reserve to continue raising interest rates at its upcoming meeting.
Several economists said on Friday they thought the Fed could slow the pace of rate hikes to half a percentage point, rather than the three-quarters rate hike approved at its recent meeting.
“The bottom line here is that the labor market is softening, but not yet to the point where the data calls for the Fed to stop tightening,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “But if these trends continue as we expect, the market will start to Push the Fed – especially Chairman Powell – to reconsider the idea of continuing to raise rates next year.”
The jobs report was hailed as good news by Labor Secretary Marty Walsh.
“Obviously, 261,000 jobs are great,” he told CNN in an interview after Friday morning’s jobs report. However, he noted that while total employment is now higher than pre-pandemic levels, there are still some industries, such as leisure, hospitality and public schools, where employment has not recovered to pre-pandemic levels.
But he acknowledged that even with a strong labor market, high prices, not jobs, are on the minds of most Americans.
“No matter how much work I can get in front of this lens and tell you how we’ve added, how great they are, people are still struggling at the kitchen table,” he said. He added that the Biden administration is working to address rising prices with its Inflation Reduction Act.
In addition to total employment, another key metric the Fed is watching is wage growth, as higher wages create inflationary pressures by putting more money in the hands of consumers and driving up demand for goods and services.
The October jobs report showed slower wage growth, with the average weekly wage paid by businesses up just 3.8% from an annual rate of 4.1% in September, well below the 5% or more seen earlier in the year and in many months increase or 2021.
Even at a 5% wage growth rate, that wouldn’t keep up with the pace of price increases paid by consumers, which averaged 8.2% in the most recent CPI. The slowdown in wage growth in the report suggests it will be harder for U.S. consumers to pay higher prices.