In October, the United States recorded the addition of 150,000 jobs, signaling a potential cooling of the robust American job market, with the unemployment rate climbing to 3.9%. This figure fell short of economists’ expectations, who had anticipated an increase of 180,000 jobs. The pace of job growth markedly decelerated compared to September, which saw the creation of a revised 297,000 jobs, a figure exceeding initial predictions.
In response to this news, US stock markets rallied, interpreting it as a potential indicator that the Federal Reserve might consider a pause in its aggressive series of interest-rate hikes, which are aimed at curbing inflation.
Over the past year, Fed officials have raised interest rates to a 22-year high in an effort to temper the economy by making borrowing more costly, with the aim of reducing demand and inflation. Fed Chair Jerome Powell recently expressed his aspiration for a “soft landing,” a scenario in which inflation subsides without significant job losses.
While the Federal Reserve and economists emphasize the importance of not overinterpreting a single month’s employment data, the October jobs report suggests that a soft landing could be within reach. The uptick in the unemployment rate from 3.8% in September to 3.9% in October, while notable, remains close to a 50-year low. It has lingered at or below 4% for nearly two years, aligning with economists’ expectations of a gradual deceleration in job creation.
Dean Baker, a senior economist and co-founder of the Center for Economic and Policy Research, commented, “It is difficult to believe that an economy with below-4% unemployment can sustain this pace of job growth.”
This announcement coincided with the Federal Reserve’s decision to keep interest rates unchanged. Despite inflation standing at an annual rate of 3.7% in the United States, down from 9.1% in June 2022, the Federal Reserve remains committed to lowering it to the target rate of 2%. Powell cautioned that there is a long road ahead in their campaign to control price growth and indicated the possibility of further rate hikes.
The Labor Department also revised the job growth figures for August and September, revealing that job gains were 101,000 lower than initially reported.
The recent wave of strike actions in the United States affected the jobs data, particularly in manufacturing employment, which saw a decrease of 35,000 jobs due to industrial action by members of the United Auto Workers (UAW) union against car manufacturers such as Ford, General Motors, and Stellantis. However, the UAW reached agreements with these automakers at the end of the previous month, resulting in the resumption of work for affected employees.
In October, declines were also observed in sectors unaffected by strikes, including transportation, warehousing, information, and finance.
Andrew Hunter, Deputy Chief US Economist at Capital Economics, suggested that the report indicated a potential slowdown in the strength of the economy in the fourth quarter. He pointed to a deceleration in wage growth, with average hourly earnings rising by 4.1% year-on-year, down from 4.3% in September. Hunter remarked, “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 provider in the United States, reported that private employers added 113,000 workers in October, falling short of expectations. Wages saw a 5.7% year-on-year increase, the smallest annual gain since October 2021.
Nela Richardson, Chief Economist at ADP, noted that significant post-pandemic wage increases appear to be a thing of the past, stating, “Big post-pandemic pay increases seem to be behind us. In all, October’s numbers paint a well-rounded jobs picture. And while the labor market has slowed, it’s still enough to support strong consumer spending.”