The U.S. labor market added 150,000 jobs in October,¹ lower than economists forecast, and a stark decline from the 297,000 jobs the economy added in September, a revision from the initially reported 336,000 for that month.

“The October employment report came in below expectations at 150,000 jobs, with the ongoing auto workers’ strike likely partly responsible for the unexpected 35,000 decline in manufacturing payroll,” said Shawn Snyder, Global Investment Strategist for J.P. Morgan Wealth Management. 

Snyder went on to highlight that, while the report was below expectations, it’s important to view the jobs report relative to the population’s growth.

“The report did still show positive jobs growth. As a reminder, the labor market needs to add somewhere between 75,000 to 100,000 jobs each month to keep up with population growth. Anything below that and the unemployment rate will start to rise.”

The overall unemployment rate ticked higher to 3.9% from 3.8% in September. The labor force participation rate, at 62.7%, changed little from the previous month, as the employment-population ratio also moved slightly lower to 60.2% in October from 60.4% in September.²

Data on wage growth is one driver of the inflation outlook, which the Fed watches closely to gauge labor market tightness. Average hourly earnings, an important measure for inflation, rose 0.2% for the month. Including October gains, average hourly earnings have increased 4.1% year-over-year over the past 12 months, marking a slight slowdown from the 4.2% year-over-year wage growth reported in September.³

On a sector basis, health care, government and social assistance saw the most job gains, while employment dropped in manufacturing because of the aforementioned strikes in the auto industry. Health care added 58,000 jobs in October, in line with the average monthly gain of 53,000 over the prior 12 months. The number of government jobs climbed by 51,000 and is back to its pre-pandemic February 2020 level.⁴

Social assistance added 19,000 jobs in October, and construction employment continued to trend up, gaining 23,000 jobs, slightly above its average monthly gain of 18,000 over the prior 12 months.

Meanwhile, manufacturing lost 35,000 jobs in October, reflecting a decline of 33,000 in motor vehicles and parts that was largely due to strike activity.⁵

The Bureau of Labor Statistics also revised lower its counts for the previous two months. September’s report initially claimed 336,000 job gains, but was revised to 297,000, and August came in at 165,000 from 227,000. The average workweek for all employees on private nonfarm payrolls edged down by 0.1 hour to 34.3 hours in October.

The labor market is a key indicator in the Federal Reserve’s interest rate hiking decisions as it continues to battle inflation, which is still running above the Fed’s target of 2%. At the most recent Federal Open Market Committee (FOMC) meeting last week, the Fed again opted for a hiking pause, holding its benchmark overnight interest rate steady at 5.25% to 5.50%, after raising rates 11 consecutive times since March 2022. 

On Wednesday, Fed Chair Jerome Powell noted that the Fed “will need to see some slower growth and some softening in the labor market, in labor market conditions, to fully restore price stability.”⁶

While Powell and the Fed seem to be seeking softening in the labor markets, there are other indicators that seem to support lower potential for a recession.

 
“Although the report is a sign that the economy and labor market are cooling off from an overheated third quarter, other labor market data like initial jobless claims are not yet signaling an imminent recession,” noted Snyder. “At this stage, the data are largely consistent with a softish landing.”

  
As for the Fed’s next interest rate decision in December, Powell said in his press conference this week that between now and then the central bank will have two more months of inflation data, another employment reading and other economic data to study before making its decision in December.

Powell said the central bank recognizes recent data showing resilience in the economy and strong labor demand, and noted that to reach the central bank’s goal of reducing inflation will likely “require a period of below-potential growth and some softening of labor market conditions.”⁷

 
As mentioned, things such as initial jobless claims, as well as several jobs report revisions, which show lower than initially reported growth, provide support for a cease to rate hikes.

“These data add support to the narrative that the Fed is done with rate hikes. In fact, following the report, financial markets moved up their expected timing of rate cuts from July 2024 to June 2024,” said Snyder. “Combined with Chair Powell’s comments earlier in the week, Treasury yields have come down quite rapidly over the past couple of weeks. Since October 18, the 2-year U.S. Treasury yield has fallen from 5.22% to 4.85% at the time of this writing. The 10-year Treasury yield is down 4.99% to 4.55% over the same time period. This may allow the stock market to breathe a sigh of relief should bond yields remain contained due to the modestly softer economic data.”

The October inflation report, due out November 14, is the next big indicator economists will be monitoring for clues about what the Fed’s next moves might be.

The next FOMC meeting is scheduled for December 12-13.

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