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Mixed bag of jobs: Employers continue to hire, but unemployment is rising

The once-hot US labor market is starting to show signs of cooling. Friday’s Labor Department report showed a slower pace in hiring and higher unemployment.

Although the October jobs report was strong, historical standards suggest that a series of rate hikes by the Federal Reserve meant to cool down the economy have had a limited effect on employers’ desire for more workers.

According to the report, 261,000 employers added jobs in October. The unemployment rate increased to 3.7% from 3.5% in September.

This is a lower monthly job gain than the September revised number of 315,000. However, it is higher than the forecast of 200,000 economists surveyed at Refinitiv.

The US economy’s October jobs gain was the smallest since December 2020. It is nevertheless a significant gain by historical standards. Over the decade preceding the pandemic, the economy added an average of 183,000 jobs per month.

“Today’s stronger-than-expected report highlights the difficult task ahead for the Fed wrestling with a resilient labor marketplace and sticky inflation,” stated Mike Loewengart of Morgan Stanley Global Investment Office, head for model portfolio construction. Investors who hoped for a more dovish Fed shortly may find this disappointing, but it was still the lowest reading in almost two years.

Economists expected a lower rise in unemployment to 3.6%. The unemployment rate is calculated by a separate survey of households, rather than the employer survey that counts workers on the job.

Historical standards show that the higher-than-expected unemployment rate remains low — September’s reading of 3.5% was the lowest recorded in half a century.

It all means for inflation & the Fed

Jerome Powell, Chairman of the Federal Reserve, has warned that the economy might need to lose jobs to slow down economic growth and combat rising prices. A strong labor market could allow the Fed to increase rates at its next meetings.

Several economists stated Friday that they believe the Fed could slow down the pace of rate increases to a half percentage point rather than the three-quarters point increases it approved at its recent meetings.

“The bottom line is that the labor market has begun to soften, but not enough for the Fed’s attention to tell them to stop tightening,” stated Ian Shepherdson, Pantheon Macroeconomics chief economist. “But, if these trends persist, as we anticipate, the markets will begin to push the Fed, and particularly Chair Powell, to reconsider the idea of continuing hikes next year.”

Marty Walsh, Labor Secretary, praised the jobs report as good news.

In an interview Friday morning following the jobs report, he said that 261,000 jobs were great. He noted, however, that although total employment is now higher than it was before the pandemic there are still certain sectors such as leisure, hospitality, and public schools where employment levels are not back to pre-pandemic levels.

He acknowledged, however, that despite the strong labor market, Americans are more concerned about high prices than jobs.

He said, “No matter how many jobs I can get in front of a camera and tell you how much we’ve added and what great they are,”. He added that the Inflation Reduction Act is a tool used by the Biden administration to combat rising prices.

The Fed also considers employment totals. Wage growth is another key metric. Higher wages can cause inflationary pressure, as more money is available to consumers, driving up demand for goods, and thereby increasing the amount of money that they have.

October’s jobs report revealed a slowdown in wage gains. The average weekly wage paid to businesses increased by 3.8% compared to September’s 4.1% annual gain. This is well below the gains of 5% or greater seen earlier in the year and many months in 2021.

Even though wage growth was at 5% it did not keep pace with price increases paid by consumers. This averaged 8.2% in the latest Consumer Price Index. This report shows that consumers in America will have a harder time paying higher prices due to slower wage growth.

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