US job growth rose more than expected in October, but the pace is slowing and the unemployment rate rose to 3.7 percent, suggesting some easing in labor market conditions, which would allow the Federal Reserve to switch to smaller interest rate hikes starting in December.
Friday’s closely watched Labor Department unemployment report also showed annual wages rose at their slowest pace in just over a year last month. Household employment fell and the employment-to-population ratio, seen as a measure of an economy’s ability to create jobs, for working-age workers fell the most in 2.5 years.
“The basis of the labor market strength story fades a little bit when you pull back the canvas and take a closer look at the details,” said Christopher Rupkey, chief economist at FWDBONDS in New York. “To us, the report looks like payroll job growth will falter in the coming months as businesses batten down the hatches while the Fed continues to take the hit off the economy.”
The survey of establishments showed nonfarm payrolls rose by 261,000 last month, the smallest gain since December 2020. September data was revised up to show 315,000 jobs added instead of the 263,000 previously reported.
Job growth averaged 407,000 per month this year compared with 562,000 in 2021. Economists polled by Reuters had forecast 200,000 jobs, with estimates ranging from 120,000 to 300,000. Even so, the labor market remains tight, with 1.9 vacancies per unemployed person at the end of September.
The Fed on Wednesday delivered another interest rate hike of 0.75 percent, saying its fight against inflation would require borrowing costs to rise further. But the US central bank signaled that it could be approaching a tipping point in what has become the fastest tightening of monetary policy in 40 years.
The overall gain in hiring last month was led by health care, which added 53,000 jobs. Professional and technical services payrolls increased by 43,000 jobs.
Manufacturing employment increased by 32,000 jobs, while leisure and hospitality added 35,000 jobs. Leisure and hospitality employment remained 1.1 million jobs below its pre-pandemic level. The sector had the highest number of vacancies.
Government payrolls rebounded by 28,000 jobs. There were moderate employment gains in interest rate sensitive sectors such as financial activities and retail trade. Construction payrolls barely increased, while transportation and warehousing added 8,000 jobs.
Recruitment continues to catch up
Betsey Stevenson, an economist at the University of Michigan who was an economic adviser to President Barack Obama, noted that more than half of net hiring last month were in industries — health, education, restaurants and hotels, for example — that still appear to be catching up with the heavy job losses they suffered during the pandemic recession. Hiring in such sectors will likely continue, she suggested, even if the economy slows.
The “birth-death” model, which the government uses to estimate how many businesses were created or destroyed, showed a jump in estimates of new business creation, which some economists say could have artificially boosted payrolls.
The additional birth-death factor at the non-seasonally adjusted payroll level was 455,000, surpassing the previous October high of 363,000 in 2021.
“This is well above the 18-year average of 140,000,” said Sarah House, a senior economist at Wells Fargo in Charlotte, North Carolina.
Others, however, were skeptical, noting that the large birth-death factor followed a drop of 172,000 in September.
Stocks on Wall Street were narrowly mixed. The dollar fell against a basket of currencies. US Treasury prices were mixed.
Slower pace in the job market
Job growth has persisted as companies replace workers who have left. But with recession risks rising due to higher borrowing costs, this practice could end soon. A survey by the Institute of Supply Management on Thursday found that some service industry firms “are putting off replenishing open positions” due to uncertain economic conditions.
Average hourly earnings rose 0.4 percent after rising 0.3 percent in September. Wages rose 4.7 percent year-on-year, the smallest gain since August 2021, after advancing 5 percent in September when last year’s big increases were left out of the calculation.
Other wage measures have also come off the boil, which bodes well for the inflation outlook. Next week’s inflation data is expected to show the annual rise in consumer prices slowing below 8 percent for the first time this year.
But with inflation creeping into services, the battle against higher prices will be a long one.
Details of the household survey from which the unemployment rate is derived were unclear. The increase in the unemployment rate of 3.5 percent in September reflected a decrease of 328,000 in household employment. The ranks of the unemployed increased by 306,000.
“While the pace of labor market activity is slowing, that slowdown has been too gradual and today’s report leaves the Fed on track to raise at least 50 basis points at next month’s meeting,” said Michael Feroli, Chief US Economist at JPMorgan. In New York.
Some 22,000 people dropped out of the labor force, raising the participation rate, or the share of working-age Americans who have or are looking for work, to 62.2 percent from 62.3 percent in September.
There was also an increase in the number of people unemployed for 27 weeks and more. But the number of people working part-time for economic reasons fell.
The employment-to-population ratio for workers in the 25-54 age group fell 0.4 percentage point to 79.8 percent. The drop was the biggest since April 2020.
The rate at which the unemployed find work fell to 26.7 percent from 28.6 percent in September.
“There are some very clear signs of a slowdown, and that could be a moderation, but depending on a variety of factors, that moderation can turn into a deterioration,” said Nick Bunker, head of economic research at Indeed Hiring Lab. “The hope is that the labor market is simply returning to a more normal pace, instead of sitting dead in the water.”
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