October’s less robust-than-anticipated job growth and a tiny increase in unemployment indicate that the scorching labor market is finally cooling. That is advantageous.
By raising interest rates, the Federal Reserve has been attempting to contain the worst inflation in years. A slowing labor market could be a sign that the strategy is effective.
Mark Hamrick, senior economic analyst at Bank rate, wrote in a note on Friday, “This report should go over well at the Federal Reserve with less heat seen in the job market.” Following its most recent meeting on Wednesday, the Fed maintained the possibility of additional rate hikes in the event that inflation picks up steam for the second consecutive meeting. The rate is now sitting at a 23-year high.
The jobs data for this month satisfied the expectations of Fed officials, according to Jesse Wheeler, senior economist at Morning Consult. Following the release of the jobs data, he predicted in a note that “the rate hiking cycle may have come to an end.”
A few decision-makers are concerned that the Fed’s excessive aggressiveness will cause the economy to enter a recession. Progressives such as Sen. Elizabeth Warren (D-Mass.) have charged that Fed Chairman Jerome Powell has sacrificed millions of American jobs in an effort to fight inflation, which reached a 3.7% annual rate in September. That is still far above the Federal Reserve’s 2% target but far less than the 9.1% peak reached in June 2022. The employment market can stay strong but cool very gradually, as long as inflation keeps declining. This is the Goldilocks scenario.
Naturally, a single month does not create a trend. Most economists have been taken aback by the labor market’s resilient performance in the last 12 months. Even though October’s 150,000 net job gains were less than anticipated and made up almost half of September’s revised total, hiring is still growing.
The job gains from last month seem rather meager when compared to the 258,000 monthly average over the previous 12 months. However, October’s hiring levels would have been comparable to the 179,000 jobs added monthly on average during the year prior to the pandemic in 2019, if not for the United Auto Workers strikes. The statistics from next month will show how many of the striking autoworkers have already returned to their jobs. (The auto industry accounted for all but about 2,000 of the 35,000 jobs lost in the manufacturing sector last month.)
In general, a number of economists assert that the labor market is still strong, citing 34 months in a row of job expansion and two years in a row with a jobless rate below 4%.
Furthermore, many workers’ paychecks are still growing faster than inflation, even in a year when most pandemic-era lifelines have run out and millions of households are still struggling to pay for basic necessities like housing and groceries. The average hourly wage has decreased, but wages have increased 4.1% year over year compared to a 3.7% annual increase in consumer prices.
Thus far, this has allowed many customers to feel at ease about keeping up their spending, even if they cut back in certain areas or become more frugal about looking for sales.
The good news for workers is that wages are leading inflation by a wide margin, according to Hamrick’s writing.
And in this particular race, consistency pays off.
