US job growth disappoints as labor market slows.
U.S. Job Growth Slows in October, Wages Show Smallest Increase in Years
In October, job growth in the United States slowed down, partly due to strikes by the United Auto Workers union against Detroit’s “Big Three” car makers, which affected manufacturing payrolls. Additionally, the increase in annual wages was the smallest in nearly 2-1/2 years, indicating a slowdown in labor market conditions.
The Labor Department’s employment report, released on Friday, also revealed that the unemployment rate rose to 3.9 percent last month, the highest level since January 2022, compared to 3.8 percent in September.
The report showed that the economy added 101,000 fewer jobs in August and September than previously estimated, suggesting a decline in labor market momentum. This strengthened the belief among financial market experts that the Federal Reserve will not raise interest rates further in the current cycle, increasing the chances of a ”soft-landing” for the economy instead of a recession.
“This is a very Fed-friendly report,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. “The only wrinkle is that the labor force shrank. Still, the overall softness in the report will go a long way to keeping the Fed on the sidelines for a third straight meeting in December.”
The Bureau of Labor Statistics reported that nonfarm payrolls increased by 150,000 jobs in October, compared to a rise of 297,000 in September. Economists had predicted a rise of 180,000 jobs.
Key Findings:
- About 52.0 percent of private sector industries reported increases in employment, the lowest since April 2020.
- Manufacturing employment dropped by 35,000 jobs due to the UAW strike at major car manufacturers.
- Hiring is slowing down due to cumulative rate hikes from the Fed, but payroll gains remain above the level needed to keep up with population growth.
- The healthcare sector led in job growth, adding 58,000 jobs, while government employment increased by 51,000 positions.
- The construction industry added 23,000 jobs, and there were gains in social assistance and professional services payrolls.
- The transportation and warehousing industry experienced job losses, as did the information industry due to an ongoing strike in Hollywood.
The report’s findings have led financial markets to expect that the Fed will keep rates unchanged in December and January. As a result, stocks on Wall Street rallied, the dollar fell against other currencies, and U.S. Treasury prices rose.
Wage Growth Cools
In October, average hourly earnings rose by 0.2 percent, compared to a 0.3 percent increase in September. Over the past 12 months, wages increased by 4.1 percent, the smallest increase since June 2021. The average workweek shortened, and aggregate hours worked fell, both reflecting the impact of the auto strikes on the economy.
Although wage pressures are easing due to a larger labor pool and fewer job changes, the growth in average hourly earnings remains above the 3.5 percent target consistent with the Fed’s goals.
Economists have differing opinions on the impact of recent labor contracts on wage inflation. Some argue that increased worker productivity will offset higher compensation, while others believe that the shift towards a service-based economy makes it harder to boost productivity.
The report also revealed a decline in labor market momentum, with household employment falling and the labor force participation rate decreasing. However, the overall outlook for the economy remains positive, with GDP recording strong growth in the third quarter.
“October’s employment report, in conjunction with the third-quarter report on productivity and costs, clearly indicates that the economy has converged already to potentially a more sustainable path of low inflation and solid potential growth,” said Brian Bethune, an economics professor at Boston College.
(Reporting by Lucia Mutikani; editing by Nick Zieminski and Paul Simao)
In October, the labor force participation rate declined and the unemployment rate rose. What does this indicate about the state of the labor market and how might it affect job seekers?
The average hourly earnings rose by 0.2 percent in October, which was slower than the 0.3 percent increase in September. This marks the smallest increase in nearly 2-1/2 years, suggesting a slowdown in wage growth and possibly reflecting a tightening labor market.
The report also highlighted that the labor force participation rate, which measures the proportion of working-age Americans who are employed or actively seeking work, fell to 62.8 percent in October from 62.9 percent in September. This decline in labor force participation, along with the rise in the unemployment rate, suggests that some individuals may have become discouraged and stopped looking for work.
The UAW strike against Detroit’s “Big Three” car makers had a significant impact on the manufacturing sector, resulting in a drop of 36,000 jobs in October. This reflects the challenges faced by the auto industry and highlights the impact that labor disputes can have on employment numbers.
While the overall job growth in October was slower than expected, it is important to note that payroll gains are still above the level needed to keep up with population growth. This indicates that the labor market remains relatively strong, although there are signs of moderation in the pace of hiring.
Looking ahead, the Federal Reserve’s decision to pause interest rate hikes may help support continued job growth and provide stability to the economy. However, uncertainties such as ongoing trade tensions and global economic slowdown could pose challenges to the labor market in the coming months.
In conclusion, the October employment report in the United States shows a slowdown in job growth, partly due to the UAW strike and a moderation in wage growth. While these factors may indicate a slight cooling in the labor market, payroll gains remain above the level needed to keep up with population growth. The report also suggests that the Federal Reserve is likely to keep interest rates steady in the near term, which could provide support for further job growth.
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