Hiring Pace in US Slows Amidst Rising Interest Rates

In October, United States hiring exhibited a notable deceleration, with the economy generating 150,000 new jobs. This slowdown suggests a labor market that, while slower, is holding strong even as businesses and consumers grapple with the increased cost of borrowing due to heightened interest rates.

The employment increase in October, although substantially lower than September’s vigorous 297,000 jobs added, was still sufficient to indicate an ongoing demand for labor, signifying an economy with sustained vigor.

The decline in job growth for October could have been less pronounced if not for the recently resolved strikes by the United Auto Workers at the major Detroit automakers. Economists estimate that these strikes reduced job growth for the month by approximately 30,000. The strikes concluded with preliminary agreements that saw the workers gain improved wages and benefits.

A slight uptick in the unemployment rate was observed in October, rising to 3.9% from the previous 3.8%. Additionally, there has been a downward revision of job growth figures for August and September, with a combined reduction of 101,000.

Manufacturing jobs felt the impact of the UAW strikes with a decrease of 35,000 positions in October. Conversely, other sectors showed healthy employment gains, with the healthcare sector adding 58,000 jobs, government agencies 51,000, and construction firms 23,000.

Wage growth has seen a deceleration, with a modest increase of 0.2% over September and a 4.1% year-on-year rise. These figures represent the smallest gains since June 2021 on an annual basis and since February 2022 on a monthly basis.

The recent employment report is closely analyzed by the Federal Reserve in the context of its interest rate decisions. The Fed, which has left its key interest rate unchanged recently, may see the slower wage and job growth as signs of subsiding inflationary pressures, potentially diminishing the need for further rate hikes.

Since March 2022, the Fed has increased its benchmark rate 11 times as a measure against inflation, which, while down from last year’s peak, still exceeds the Fed’s 2% preferred rate.

Despite the increase in borrowing costs, the labor market remains stable, contributing to robust consumer spending. On average, 204,000 jobs have been added monthly over the past quarter.

However, October saw a reduction of 201,000 in the labor force, marking the first decline since April. This could present challenges for the Fed as the influx of labor over the past year has alleviated wage-induced inflation.

Federal policymakers are tasked with the delicate balance of dampening inflation, supporting employment, and avoiding a recession. Counter to some expectations of recession due to rising rates, the US economy expanded at a 4.9% annual rate in the third quarter.

Hiring intentions remain high among US companies. Data from September showed 9.6 million job vacancies, signifying a strong labor demand despite a reduction from March’s historical high.

This robust employment situation, paired with slowing inflation, fuels optimism that the Fed might achieve a “soft landing,” successfully moderating inflation without inducing a recession.

Economist Andrew Hunter from Capital Economics interprets the modest October job gains and slowing wage increases as indicators that the economy’s third-quarter strength might not persist into the fourth quarter, making further rate hikes by the Fed increasingly improbable.

Frequently Asked Questions (FAQs) about October job growth

More about October job growth

• October Employment Statistics
• Impact of UAW Strikes on Job Market
• Federal Reserve Rate Decisions
• US Labor Force Participation Rate
• Wage Growth Trends
• Federal Reserve’s Inflation Management
• Economic Indicators and Predictions