The U.S. economy added 261k jobs in October, coming in above the consensus forecast of 200k. Overall, revisions to the two prior months were positive, adding an additional 29k to the previously reported figures.
Employment gains on the service-side (+200k) were largely concentrated in health care & social assistance (+71k), professional & business services (+39k), and leisure & hospitality (+35k). Goods producing industries (+33k) had another solid month, though gains were almost entirely concentrated in manufacturing (+32k). Government added 28k jobs in October.
In the household survey, civilian employment fell by 328k, while the labor force declined by 22k. As a result, the unemployment rate ticked up 0.2 percentage points (pp), rising to 3.7%. The participation rate edged lower by 0.1pp, falling to 62.2.
Average hourly earnings rose 0.4% month-over-month (m/m) – accelerating from the 0.3% m/m gain recorded in September. Compared to October 2021, wage growth was up 4.7%. While this was a deceleration from the 5% y/y seen in September, it was entirely due to base effects.
Key Implications
You can’t pull the rug out from underneath this labor market! The strong reading on employment alongside the positive revisions provides yet another example of the resilience still present in the U.S. economy.
Job growth continues to run well in excess of a pace consistent with trend growth in labor supply. This cannot be sustained indefinitely. Even with some reversal in last month’s labor force numbers, the participation rate among the core working age (25-54 years old) still sits at its 2019 average. This suggest further gains in labor supply are likely to be more tepid, which should exert a more meaningful drag on employment.
A slowing in employment as a result of insufficient labor supply is a recipe for further wage gains and is the reason we saw an acceleration in month-over-month wage growth in October. Until we see a normalization in labor demand, imbalances in the labor market will remain, keeping sustained upward pressure on wages and further complicating the Fed’s fight against inflation.
The Federal Reserve delivered on a fourth consecutive 75-basis point rate hike earlier this week. While we suspect the FOMC will dial back on the pace of rate hikes in December, comments made by Chair Powell in yesterday’s press conference suggest that the FOMC’s expectations on the terminal rate have drifted higher in recent months, as inflation has shown little evidence of turning and the labor market remains incredibly tight. It’s entirely possible the Fed will need to “keep at it” through early-2023 – potentially taking the policy rate as high as 5% – in order to return price stability.
