US Job Growth in October Falls Short of Expectations, Unemployment Inches Up

Economists Surprised by Labor Market Slowdown
 

In an unexpected twist, the United States witnessed a less robust job market in October, signaling a potential cooling down of economic activity. The highly anticipated report from the Bureau of Labor Statistics disclosed that only 150,000 jobs were added during the past month, well below the 180,000 jobs that economists had predicted. Furthermore, the unemployment rate experienced a slight increase, rising from 3.8% to 3.9%.
 
Federal Reserve Faces Scrutiny Amidst Sluggish Job Growth
 
Compared to September, when the US economy added an impressive 297,000 jobs (subsequently revised down from 336,000), job growth in October significantly decelerated. Nonetheless, the number of jobs added remained substantial, surpassing initial expert projections.
 
US stock markets reacted positively to the news, interpreting it as a possible indication that the Federal Reserve might reevaluate its aggressive series of interest rate hikes designed to control inflation. Over the past year, the Fed had raised rates to a 22-year high to limit economic activity by making borrowing more expensive, ultimately curbing demand and stabilizing prices. Federal Reserve Chairman Jerome Powell expressed optimism for a "soft landing," aiming to quell inflation without triggering substantial job losses.
 
While experts remain cautious about reading too much into a single month's job data, October's report suggested that achieving a "soft landing" could be plausible. Despite the slight uptick in the unemployment rate, it remains close to a 50-year low and has consistently remained at or below 4% for nearly two years, defying expectations of a slowdown in job creation.
 
Economists Express Doubt Regarding Sustained Job Growth
 
Dean Baker, a senior economist, and co-founder of the Center for Economic and Policy Research, voiced skepticism, saying, "It is difficult to believe that an economy with an unemployment rate below 4% can sustain this pace of job growth."
 
These developments coincide with decisions by both the Federal Reserve and the Bank of England to maintain unchanged interest rates due to receding inflation and a global economic deceleration.
 
Currently, the US is experiencing an annual inflation rate of 3.7%, a decline from its peak of 9.1% in June 2022. The Federal Reserve remains committed to reducing it to its target rate of 2%.
 
Powell cautioned that the Fed's campaign to combat inflation still has a long way to go, leaving the door open to further rate hikes. Similarly, in the UK, the Bank of England's Governor, Andrew Bailey, dismissed the notion of rate cuts after keeping the current rate at 5.25% for the second consecutive time.
 
Revised Job Growth Figures and Labor Market Strikes
 
The US Labor Department revealed that job growth figures for August and September had been revised, indicating a combined 101,000 jobs lower than initially reported.
 
The labor market also bore the impact of a wave of strikes. Manufacturing employment declined by 35,000 jobs as members of the United Auto Workers (UAW) union engaged in industrial action against major automotive companies like Ford, General Motors, and Stellantis. Agreements with these auto manufacturers were reached at the end of the previous month, resulting in the resumption of work for the affected employees. Nevertheless, other sectors, including transportation, warehousing, information, and finance, experienced declines in employment without being directly influenced by strikes.
 
Economic Slowdown Reflected on Wage Growth
 
Andrew Hunter, Deputy Chief US Economist at Capital Economics, highlighted the slowing wage growth as a sign that the economy's strength in the third quarter will likely wane in the fourth. The Department of Labor reported that average hourly earnings increased by 4.1% from the previous year, a decline from 4.3% in September.
 
Hunter noted, "With wage growth also continuing to slow, it is increasingly hard to imagine the Fed hiking interest rates any further."
 
Earlier in the week, ADP, the largest payroll supplier in the US, reported that private employers added 113,000 workers in October, falling below expectations. Wages rose by 5.7% from a year ago, marking the smallest annual gain since October 2021. Nela Richardson, Chief Economist at ADP, commented, "Big post-pandemic pay increases seem to be behind us." Nevertheless, the labor market, while slowing, still possesses the strength to support robust consumer spending.