October’s employment data show a job market coming back into better balance after hiring soared in September, giving officials at the Federal Reserve more flexibility to hold interest rates steady next month.
Hiring slowed, wage gains were more modest, and unemployment ticked up. The U.S. economy added 150,000 jobs last month, the Bureau of Labor Statistics reported on Friday, marking a larger-than-expected slowdown from a spectacularly strong gain in September, mainly because of the strikes in the auto industry. Economists had expected employers added a net 180,000 jobs last month.
At the same time, the bureau revised the figures it had reported for August and September to show less hiring in both months. September’s gain in total nonfarm payrolls dropped from 336,000 to 297,000 and August’s job gains declined by 62,000. With these revisions, the combined employment gains in August and September was 101,000 lower than previously reported.
The unemployment rate also ticked up to 3.9%, the highest level recorded since early 2022. October’s unemployment figure came in slightly higher than the consensus call among economists surveyed by FactSet and September’s 3.8% rate.
“Today’s report suggests that the job market is, in fact, slowing. September seems to have been just a momentary upward blip in the jobs numbers, with October payrolls moving back in line with their previous downward trend,” wrote Seema Shah, chief global strategist at Principal Asset Management.
The cooling labor market highlighted in Friday’s jobs report further increases the chances that the Fed will keep rates steady when policy makers gather in December, Shah added. “While some may be concerned that the economy is slowing, markets will no doubt celebrate the fact that a weaker jobs market should close the chapter on a key element of discomfort that has plagued markets since liftoff in March last year.”
In March 2022, the Fed began a series of 11 interest-rate increases that took its target for the fed-funds rate from near zero to the current 5.25%-5.50%.
The 150,000 payroll gain in October is below the average monthly pace of 258,000 jobs added over the prior 12 months, according to Friday’s report. A big part of that decline was a loss of 35,000 manufacturing jobs, 33,000 of them tied to motor vehicles and auto parts, largely because 40,000 auto workers were on strike during the month. At the end of October, the United Auto Workers union reached tentative agreements with
Ford Motor
(ticker: F) General Motors (GM), and
Stellantis
(STA) to end the strikes after more than 40 days.
While manufacturing employment declined, healthcare and the government were sectors that notably added jobs last month. Leisure and hospitality employment, a major driver of higher job gains in the previous months, was little changed from September after adding an average of 52,000 jobs a month over the prior year.
Even accounting for the effect of the strikes, jobs were added more slowly in October than at the beginning of the year. But employment growth remained above the roughly 100,000 job gains the U.S. needs to keep up with increases in the population.
“The jobs numbers may be falling, but the sky is not. This report, and the fact that the numbers for the past two months have been revised down, shows we’re still on track for a soft landing,” said Rucha Vankudre, senior economist for Lightcast, a global labor-market data firm.
October’s total labor-force participation rate was 62.7%, down slightly from the 62.8% recorded in September. The prime-age participation rate, which includes workers ages 25 to 54, fell from 83.5% to 83.3% last month—a surprise, given that recent immigration should have boosted participation in the near term, according to Morgan Stanley’s analysis.
Both rates, however, still remain below pre-COVID levels—indicating that Americans could continue to come back into the labor force, adding further pressure on the job market.
Not only did the pace of hiring moderate in October, the rate at which wages are rising also slowed slightly. Average hourly earnings, a metric Federal Reserve officials watch closely because growth in wages feeds directly into inflation for services, rose 0.2% in October. That is the weakest pace recorded since February 2021. Economists had expected a gain of 0.3%, matching the increase in September.
In the past 12 months, wages have increased by 4.1%. Economists surveyed by FactSet estimated year-over-year wage growth would fall to 4% in October from the 4.3% rate seen in September.
The slowing wage gains are good news for not only central bank officials looking to see more modest pay increases, but also for Fed watchers and investors looking to avoid a rate hike in December. One reason why September’s big jump in hiring didn’t lead the Fed to raise rates at this week’s monetary-policy meeting was that wage growth had moderated, suggesting the labor market remained strong but not wasn’t overheating in a way that would add to inflation.
“This report shows that the economy is slowing from its prior red-hot pace, but that’s just normalization rather than anything recessionary,” wrote Sonu Varghese, global market strategist at Carson Group.
Write to Megan Leonhardt at megan.leonhardt@barrons.com and Megan Cassella at megan.cassella@dowjones.com
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