US job growth falls short of expectations in October as labor market weakens.
By Lucia Mutikani
1:48 PM UTC – November 3, 2023
WASHINGTON (Reuters) – U.S. job growth slowed in October in part as strikes by the United Auto Workers (UAW) union against Detroit’s “Big Three” car makers depressed manufacturing payrolls, and the increase in annual wages was the smallest in nearly 2-1/2 years, pointing to an easing in labor market conditions.
The Labor Department’s closely watched employment report on Friday also showed the unemployment rate rising to 3.9% last month, the highest since January 2022, from 3.8 in September. The decline in the jobless rate was despite people dropping out of the labor force. Also suggesting slowing labor market momentum, the economy added 101,000 fewer jobs in August and September than previously estimated.
The report strengthened financial market expectations that the Federal Reserve is done raising interest rates for the current cycle. The U.S. central bank held rates unchanged on Wednesday but left the door open to a further increase in borrowing costs in a nod to the economy’s resilience.
“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.”
Nonfarm payrolls increased by 150,000 jobs last month, the Labor Department’s Bureau of Labor Statistics said in its closely watched employment report on Friday. Data for September was revised lower to show 297,000 jobs created instead of 336,000 as previously reported. Economists polled by Reuters had forecast payrolls rising 180,000.
Manufacturing employment dropped 35,000, with the UAW strike at Ford Motor (F.N), General Motors (GM.N) and Chrysler parent Stellantis (STLAM.MI) factories as well as at Mack Trucks plants, subtracting 33,000 jobs from payrolls.
In addition to the industrial action, which has since ended, the slowdown in employment gains last month was pay-back after September’s large gains. The payrolls count was also likely impacted technical factors, related to the model used to strip out seasonal fluctuations from data.
Payrolls gains remain way above the roughly 100,000 jobs per month needed to keep up with growth in the working-age population. Last month’s increase in hiring was led by the healthcare sector, which added 58,000 jobs, the bulk of them in ambulatory health care services, in line with recent trends.
Employment in government increased by 51,000, returning to its pre-pandemic level. The rise in government payrolls was driven by local government hiring.
Construction employment increased 23,000. There were also gains in social assistance as well as professional and business services payrolls.
Leisure and hospitality employment rose 19,000, well below the monthly average of 52,000 the last 12 months.
There were job losses in the transportation and warehousing industry. Employment in the information industry continued to be weighed down by an on-going strike in Hollywood.
U.S. stocks opened higher. The dollar fell against a basket of currencies. U.S. Treasury prices rose.
WAGE GROWTH COOLS
Average hourly earnings rose 0.2% after climbing 0.3% in September. In the 12 months through October, wages increased 4.1%, the smallest increase since June 2021, after rising 4.3% in September. The labor market is the major force behind the economy’s staying power, with gross domestic product recording an annualized growth pace of nearly 5% in the third quarter.
Though wage pressures are easing because of a recent expansion of the labor pool and fewer people changing jobs, the annual growth in average hourly earnings remains above the 3.5% that economists say is consistent with the Fed’s 2% target.
Wages have not been the main driver of inflation, but some economists worry that recent hefty contracts, including the ones scored by the UAW, airline pilots and the union representing UPS workers, could complicate the Fed’s fight against inflation.
They argued that the recent surge in worker productivity would not be enough to offset the higher compensation as the economy was now predominantly services.
But others disagreed, saying that the record-setting contracts would only become an issue for wage inflation if the Fed raised rates too high and choked off demand. They viewed the UAW contract as getting wages in the auto sector more aligned with the surge productivity during the COVID-19 pandemic.
Reporting by Lucia MutikaniEditing by Nick Zieminski
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How did the strikes by United Auto Workers impact job growth in the U.S. in October?
Title: U.S. Job Growth Slows in October, Wage Growth Cools
Introduction:
The U.S. labor market experienced a slowdown in job growth during the month of October. This deceleration can be attributed, in part, to strikes by the United Auto Workers (UAW) union against Detroit’s major car manufacturers. Furthermore, the increase in annual wages was the smallest it has been in nearly two and a half years, signaling a potential easing in labor market conditions. These findings were revealed in the closely watched employment report released by the Labor Department on Friday.
Jobless Rate and Labor Force:
The unemployment rate rose to 3.9% in October, the highest it has been since January 2022, compared to 3.8% in September. Interestingly, this increase occurred even as people dropped out of the labor force. Additionally, the report highlighted that the economy added 101,000 fewer jobs in August and September than previously estimated, suggesting a slowdown in labor market momentum.
Impact on Federal Reserve:
The employment report has reinforced expectations in the financial market that the Federal Reserve has finished raising interest rates for the current cycle. While the central bank maintained interest rates unchanged in its recent meeting, it left the possibility open for further increases in borrowing costs to acknowledge the resilience of the economy. Analysts believe that the softer aspects of the report will influence the Fed to adopt a wait-and-see approach in their December meeting.
Nonfarm Payrolls and Manufacturing Employment:
The employment report revealed that nonfarm payrolls increased by 150,000 jobs in October. However, this figure fell short of economists’ expectations of a 180,000 increase. Manufacturing employment experienced a decline of 35,000 jobs due to the strike by the UAW at major automotive factories, including those of Ford, General Motors, Chrysler parent Stellantis, and Mack Trucks.
Other Employment Trends:
The report showed that employment gains in other sectors remained above the level needed to sustain growth in the working-age population. The healthcare sector added 58,000 jobs, predominantly in ambulatory health care services, while government employment increased by 51,000, returning to pre-pandemic levels. Construction, social assistance, and professional and business services also saw job gains. However, the leisure and hospitality sector only added 19,000 jobs, significantly below the monthly average of 52,000 over the past 12 months.
Impact on Wages:
Average hourly earnings rose by 0.2% in
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