The U.S. labor market continued to slow in October, but it still shows resilience. Employers added 261,000 jobs in the month while the unemployment rate increased to 3.7%. However, reflecting the very tight labor market, labor force participation dropped to 62.2% and wage growth over the last year remained stubbornly high at 4.7%. Strength in the job market will force the Federal Reserve to continue its restrictive policy of rate increases.
Job Market Continues to Slow but Remains Resilient
261,000 Jobs Added in October While Unemployment Rose to 3.7%
Top Takeaways from the Report
October Job Growth Shows Continued Strength
U.S. employers added 261,000 jobs in October, signaling that labor demand continues to be strong in America. This reflects a slowdown from 315,000 jobs added in September, but with a caveat. The Labor Department provided revised estimates to the August and September jobs numbers, meaning that growth in the previous two months was 29,000 higher than they had previously thought. The number of jobs added in October was also higher than the consensus expectation that 210,000 were added in the last month.
The unemployment rate increased slightly in October to 3.7%, from 3.5% in September. This shows that the labor market continues to be very tight. The unemployment rate has remained in a very compact range since March of this year, as employers still struggle to find the workers they need. While there are some signs of loosening in specific sectors like tech, transportation, and construction; many employers remain reluctant to let workers go, given the difficulty they face in finding new employees. In a separate report, the Labor Department said there are still just under two job openings for every unemployed worker.
A strong labor market should pull people off the sidelines and back into jobs, but the labor force participation rate dropped again in October to 62.2% compared to 62.3% in September. This is concerning because it’s another sign that the labor market continues to be overheated and the demand for workers exceeds the supply. And the participation rate still remains significantly below the pre-pandemic level of 63.3% in early 2020.
Wage growth also slowed in October but remains too high. On a year-over-year basis, wage growth slowed from 5.0% in September to 4.7% in October. However, monthly wage growth accelerated in the last month, from 0.3% in September to 0.4% in October. This means that wages continue to add to inflationary pressure in the economy.
Ultimately, everything hinges on inflation. Large price increases that began in early 2021 continue to pressure the economy. The Consumer Price Index increased 8.2% in September, which remains far above the Fed’s target of 2% annual inflation. And core inflation, which excludes more volatile food and fuel, accelerated to 6.6%. This continued price pressure will force the Fed to continue its interest rate increases into the next several months.
Growth by Industry
All industries had positive job growth in October. The private-sector added 233,000 jobs, with the goods-producing industries adding 33,000 jobs and the service-providing industries adding 200,000 jobs.
Employment in leisure and hospitality continued its strong growth in October, adding 35,000 jobs over the previous month. However, employment in the industry is still 1.1 million below its pre-pandemic level in February 2020.
Other notable job gains occurred in education and health services (+79,000), professional and business services (+39,000), manufacturing (+32,000), trade, transportation, and utilities (+31,000), and government (+28,000).
The Bottom Line
When the Federal Reserve announced its latest interest rate increase, Chairman Jerome Powell specifically pointed to the imbalance in the labor market as one of the main challenges. “The broader picture is of an overheated labor market where demand substantially exceeds supply,” said Powell. The October jobs report shows that the challenges remain persistent.
While there are some early signs of softening in the labor market, the overall report reflects continued strength and resilience. This will push the Fed to continue on its path of higher rates for an extended period of time.
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