U.S. Job Creation Slows in October, Easing Pressure on Federal Reserve
In a report released on Friday, the Labor Department revealed that job creation in the U.S. economy has decelerated in October, aligning with previous expectations of a slowdown and potentially relieving some pressure on the Federal Reserve in its efforts to combat inflation.
According to the report, nonfarm payrolls increased by 150,000 for the month, falling short of the Dow Jones consensus forecast of 170,000. The gap can be attributed primarily to the United Auto Workers strikes, which resulted in a net loss of jobs in the manufacturing industry.
The unemployment rate also saw an increase, rising to 3.9%, the highest level since January 2022. This was contrary to expectations that the rate would remain steady at 3.8%. The household survey, which is used to calculate the unemployment rate, showed a decline of 348,000 workers, while the number of unemployed individuals rose by 146,000.
Furthermore, a more comprehensive jobless rate, which includes discouraged workers and those working part-time for economic reasons, rose to 7.2%, marking a 0.2 percentage point increase. The labor force participation rate slightly declined to 62.7%, and the labor force itself contracted by 201,000.
Becky Frankiewicz, the chief commercial officer at staffing firm ManpowerGroup, commented, “Winter cooling is hitting the labor market. The post-pandemic hiring frenzy and summer hiring warmth has cooled, and companies are now holding onto employees.”
Regarding inflation, average hourly earnings only increased by 0.2% for the month, lower than the forecasted 0.3%. However, the year-over-year gain of 4.1% exceeded expectations by 0.1 percentage point. The average work week also saw a slight decrease to 34.3 hours.
The Federal Reserve considers wage data as a crucial element in monitoring inflation. Despite inflation running well above its 2% target, the central bank has chosen not to raise interest rates in its past two meetings. Following the release of the jobs data, the probability of a rate hike in December decreased to just 10%, according to a CME Group gauge.
Markets responded positively to the report, with futures tied to the Dow Jones Industrial Average gaining 100 points.
From a sector perspective, healthcare led with 58,000 new jobs, and other leading gainers included government (51,000), construction (23,000), and social assistance (19,000). The leisure and hospitality industry, which has been a top job gainer, also added 19,000 jobs.
However, manufacturing experienced a loss of 35,000 jobs, with all but 2,000 of those losses resulting from the auto strikes. Transportation and warehousing saw a decline of 12,000 jobs, while information-related industries lost 9,000 jobs.
David Russell, the global head of market strategy at TradeStation, noted, “After years of incredible strength, the labor market could finally be slowing. The topline miss, plus downward revisions and higher unemployment, deliver a strong message to [Chair] Jerome Powell and the Fed. Further tightening is now highly unlikely, and rate cuts could be back on the table next year.”
Additionally, the Bureau of Labor Statistics revised downward the job counts for the previous two months. September’s total was revised to 297,000, down from the initial estimate of 336,000, while August’s figure was lowered to 165,000 from 227,000. In total, the revisions reduced the original estimates by 101,000.
It is worth noting that the majority of job creation skewed towards full-time workers, reversing a recent trend. Full-time jobs increased by 326,000, while part-time jobs decreased by 670,000 as seasonal summer positions ended.
The release of this report comes at a critical time for the U.S. economy. After a third quarter that saw gross domestic product expand at a 4.9% annualized pace, exceeding expectations, growth is anticipated to significantly slow down. The Treasury projected that fourth-quarter GDP growth will be just 0.7%, with a full-year growth rate of 1% in 2024.
The Federal Reserve has intentionally implemented measures to slow down the economy in order to address inflation. In its most recent meeting, the Fed’s rate-setting committee chose not to make any changes for the second consecutive time, following 11 rate hikes since March 2022.
Markets anticipate that the Fed is finished with raising interest rates, although central bank officials maintain that their decisions will depend on incoming data, and they could still opt for further hikes if inflation does not consistently show signs of decline.
Inflation data has been mixed in recent times. The Fed’s preferred gauge indicated that the annual rate dropped to 3.7% in September, highlighting slow but steady progress towards its target.
Strong consumer spending has surprisingly contributed to higher prices, as solid demand has allowed companies to raise their prices. However, economists express concern that increasing credit card balances and higher withdrawals from savings could impede future spending.
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