Jamie Spencer
In October, the US labor market displayed signs of fatigue, adding just 12,000 jobs—an alarming drop from the projected 100,000 and a significant deceleration from September’s 223,000 jobs. The subdued hiring pace reflects the impacts of major worker strikes and severe weather disruptions, as noted by economists. While the unemployment rate stayed constant at 4.1%, the report shows cracks in a labor market gradually shifting toward a cooling phase, an outcome many analysts believe could push the Federal Reserve to rethink its current policies on interest rates.
The Unexpected Job Shortfall
October’s employment report revealed a stark contrast to expectations, with job additions drastically underperforming. According to the Bureau of Labor Statistics (BLS), the figure came in far lower than forecasted, underscoring the pressures from external disruptions. Joe Brusuelas, chief economist at RSM, advised not to dwell solely on the job addition numbers. “Ignore that top line [job additions], look at that 4.1% and just get on with it,” he told Yahoo Finance. Brusuelas’ remarks reflect the sentiment that broader trends are more crucial indicators amid isolated disruptions in the data.
The BLS confirmed the report was likely impacted by recent hurricanes and the strike by Boeing workers, but emphasized the inability of the survey to separate effects caused by such events from the overall job metrics. “It is likely that payroll employment estimates in some industries were affected by the hurricanes,” the BLS stated. However, they clarified, “it is not possible to quantify the net effect on the over-the-month change in national employment, hours, or earnings estimates.” Manufacturing jobs, particularly affected by strike activity, showed a drop of 46,000 positions in October.
Wages Rise as Labor Force Participation Falls
Despite the reduced job creation, wage growth picked up momentum, with an annual increase of 4.1% compared to September’s 4% growth. Month-over-month, wages rose by 0.4%, indicating sustained demand for workers amid limited labor supply. Nonetheless, labor force participation dropped slightly to 62.6%, further highlighting a labor market navigating uncertain terrain.
These wage trends signal a mixed bag for the Federal Reserve. While rising wages often fuel inflation, the slowdown in job growth could ease inflationary pressures over time. This is likely to weigh on the Fed’s upcoming policy decisions, with markets currently projecting a 99% chance of a 25-basis-point rate cut in early November, up from a 95% chance just a week ago.
Signs of a Cooling Labor Market
Beyond the monthly employment figures, broader data suggest a softening labor market. The BLS reported earlier in the week that job openings had fallen to their lowest level since January 2021. Similarly, the quits rate, which measures worker confidence in the job market, declined to 1.9% in September, the lowest since June 2020. Carson Group’s global macro strategist Sonu Varghese noted, “The big picture is that the labor market continues to cool down (even beyond hurricane effects), and this should keep the Fed on pace for rate cuts in November and December.”
These indicators reflect a significant shift from the robust job growth experienced earlier in the year, suggesting that workers and employers alike are adjusting to a slower economic pace, amid high inflation and interest rates. Fewer job openings and lower quits rates often signal cautious optimism in hiring and job switching, with employees potentially hesitant to leave roles amid economic uncertainty.
What This Means for the Fed and Future Economic Policies
The October employment report is likely to inform the Federal Reserve’s decisions in the coming months. Despite the expectation of a November rate cut, continued wage growth complicates the Fed’s goal of reining in inflation without stifling economic growth. The cooling labor market, however, suggests that the Fed’s rate hikes may have successfully curbed some of the labor demand pressures that contributed to inflation.
As the Fed approaches its next policy meeting, all eyes will be on how it balances these complex dynamics. While worker strikes and storms may have skewed October’s figures, underlying indicators point toward a steadily decelerating labor market. Investors and policymakers alike will be watching closely for signs of a soft landing, hoping the economy can achieve lower inflation without sacrificing employment.
A Turning Point for the Labor Market?
October’s disappointing job growth may be remembered as a pivotal moment in the ongoing adjustment of the US economy. As interest rates and inflation reshape employer and worker behaviors, the once red-hot labor market appears to be shifting to a more restrained pace. Policymakers, businesses, and workers are preparing for an economy that’s cooling—but hopefully not freezing—as it transitions into a new phase.
