Job growth in October could be lowest in nearly 2 years, but unemployment remains extremely low

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Contractors work on the roof of a home under construction in the Stillpointe subdivision in Sumter, South Carolina, on Tuesday, July 6, 2021.

Micha Green | Bloomberg | Getty Images

The high pace of job creation this year may have slowed slightly in October, but unemployment is expected to remain very low as companies continue to struggle with staff shortages.

Economists expect 205,000 jobs to be added in October and predict the unemployment rate to remain at 3.5%, according to Dow Jones. That compares with a job growth of 263,000 in September. The monthly employment report will be released Friday at 8:30 a.m. ET.

Wage growth was expected to cool slightly, with average hourly wages rising 0.3% in the month, or 4.7% more than a year ago, compared to an annual rate of 5.0% in September.

“The only thing that will go strong are leisure jobs and hospitality,” said Diane Swonk, chief economist at KPMG. “Production can be light. We’re moving from goods to services… We’re bursting a housing bubble, and it’s showing.”

As for the Federal Reserve, economists say the kind of job growth expected in October will not deter the central bank from its aggressive rally. Fed Chair Jerome Powell said on Wednesday that the Fed could reduce the size of its rate hikes, but it should be possible to raise rates to higher-than-expected levels to halt inflation.

Job squeeze seen, but not yet

Economists expect that interest rate hikes will eventually slow the economy down enough to shrink the labor market.

“I don’t think they’ll start riding the win lap if we get a slightly weaker number here,” said Tom Simons, money market economist at Jefferies. He expects 170,000 jobs to be created, which would be the slowest job growth since payrolls actually contracted in December 2020.

“It will take them several months for the policy to take effect,” he said.

Swonk expects 160,000 new jobs to be added to the economy in October. “The Fed is now focusing on the labor market and is willing to go ahead and let unemployment rise because even with the slowdown we’ve had, it hasn’t been enough to derail inflation,” she said.

Recent data shows that the number of job openings soared in September, despite the Fed’s efforts to cool the historically hot job market, contributing to the highest inflation rate since the early 1980s.

The number of job openings for the month was 10.7 million, surpassing the FactSet estimate of 9.9 million, according to data from the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey.

If payrolls are much stronger than expected in October, the Fed will not slow the pace of the rate hike when it next meets on December 13 and 14. in December,” said Simons. “I’d say it’s 50/50 about where they’re going.”

Other data will also be a factor. There will be another monthly employment report on Dec. 2 and two more consumer price index releases ahead of that next Fed decision.

Swonk said the housing slowdown could start slightly in October jobs, but builders seem to be holding on to workers for now due to labor shortages. The next area to slow down is likely multi-family housing, she said. Weakness in housing could spill over into financials, with positions in mortgage brokers or retail lost, if concerned consumers spend less.

She noted that Halloween sales were strong. “The fear is that we spent a lot of goods that we would do early during the holidays,” she said. Swonk added that it also seems like consumers are willing to spend on leisure travel, and that may mean less on gifts.

Swonk’s estimate is below the October consensus forecast. “We’ve added 3.8 million jobs so far and that’s the second strongest number since 1984,” she said. The strongest was 2021, when more than 6 million jobs were created.



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