US job growth strong in October, but cracks appear

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US job growth picked up more than expected in October, but the pace is slowing and the unemployment rate has risen to 3.7 percent, pointing to some easing in labor market conditions, which could see the Federal Reserve switch to smaller jobs from December. interest rate hikes.

The Labor Department’s closely monitored unemployment report on Friday also showed annual wages rose at the slowest pace in just over a year last month. Household employment declined and the employment-to-population ratio, which is considered a measure of an economy’s ability to create employment, for first-age workers has fallen the most in 2.5 years.

“The basis of the labor force strength story fades a bit when you pull back the tarpaulin and take a closer look at the details,” said Christopher Rupkey, chief economist at FWDBOUNDS in New York. “The report ahead of us looks like payroll job growth will falter in the coming months as companies close their shutters as the Fed continues to rip the economy off.”

The survey of establishments found that nonfarm payrolls rose by 261,000 last month, the smallest increase since December 2020. The data for September was revised higher to show 315,000 jobs added instead of 263,000 previously reported.

Employment growth has averaged 407,000 per month this year, compared to 562,000 in 2021. Economists polled by Reuters had forecast 200,000 jobs, with estimates ranging from 120,000 to 300,000. Nevertheless, the labor market remains tight, with 1.9 vacancies per unemployed person at the end of September.

The Fed pushed another 0.75 percent rate hike on Wednesday and said its fight against inflation would require borrowing costs to rise further. But the US central bank indicated it may be approaching a turning point in what has become the fastest monetary tightening in 40 years.

The broad increase in hires last month was led by the healthcare sector, creating 53,000 jobs. Professional and technical services payrolls increased by 43,000 jobs.

Employment in manufacturing increased by 32,000 jobs, while leisure and hospitality jobs added 35,000. Employment in the leisure and hospitality sector remained 1.1 million jobs below pre-pandemic levels. The sector had the most vacancies.

Government payrolls recovered with 28,000 jobs. Interest-rate-sensitive sectors such as financial activities and retail saw modest gains in employment. Construction payrolls barely rose, while transportation and warehousing added 8,000 jobs.

Renting is still catching up

Betsey Stevenson, a University of Michigan economist and economic adviser to President Barack Obama, noted that more than half of net hires last month were in sectors — health care, education, restaurants and hotels, for example — that continue to be a to catch up on the sharp job losses they endured during the pandemic recession. Hiring in such sectors is likely to continue, she suggested, even as the economy slows.

The “birth-death” model, which the government uses to estimate how many companies have been created or destroyed, showed a jump in estimates of new company creation, which some economists said could have artificially increased payrolls.

The birth-death add-on to the non-seasonally adjusted payroll level was 455,000, up from 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 September 172,000 drop.

Stocks on Wall Street were narrowly mixed. The dollar fell against a basket of currencies. US Treasury bond prices were mixed.

Slower pace in the labor market

Job growth has continued as companies replace workers who have left. But with recession risks mounting due to higher borrowing costs, this practice could soon come to an end. A study by the Institute for Supply Management on Thursday found that some companies in the service sector are “waiting to replenish open positions” due to uncertain economic conditions.

Average hourly wages rose 0.4 percent after rising 0.3 percent in September. Wages rose 4.7 percent year-on-year, the smallest increase since August 2021, after rising 5 percent in September when last year’s big increases were out of the equation.

Other wage measures have also taken off, boding well for the inflation outlook. Next week’s inflation data is expected to show annual consumer price increases to ease below 8 percent for the first time this year.

But with inflation shifting to services, the battle against higher prices will be a long one.

Details of the household survey from which the unemployment rate is derived were soft. The 3.5% rise in the unemployment rate in September reflected a 328,000 drop in household employment. The ranks of the unemployed rose by 306,000.

“While the pace of labor market activity is slowing, that slowdown has been far too gradual and today’s report leaves the Fed on track to increase by at least 50 basis points at next month’s meeting,” said Michael Feroli, chief economist. USA at JPMorgan. in New York City.

About 22,000 people left the workforce, raising the employment rate, or the proportion of working-age Americans who are employed or looking for a job, to 62.2 percent from 62.3 percent in September.

There was also an increase in the number of people who had been unemployed for 27 weeks or longer. But the number of people who work part-time for economic reasons fell.

The employment ratio for employees in the 25-54 age group decreased by 0.4 percentage point to 79.8 percent. The decline was the largest since April 2020.

The rate at which the unemployed find a job slowed to 26.7 percent, from 28.6 percent in September.

“There are some very clear signs of slowing down, and that could be a moderation, but depending on a number of factors, that moderation could turn into a worsening,” said Nick Bunker, head of economic research at the Indeed Hiring Lab. “The hope is that the job market will just return to a more normal pace, rather than be dead in the water.”



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