The job market slowed meaningfully in October. All of the key indicators in the October Jobs Report suggest that the economy is cooling and the labor market is slackening. They support the Fed’s decision this week to pause rate hikes.
Note that about 30K auto manufacturing workers were not on payroll due to the UAW strike. But even if one accounts for the strike, job growth has slowed, and the labor market loosened.
- Job gains slowed to 150K, well below the ~260K average for the year to date, and the prior two months’ numbers were revised downwards by a combined 162K. The household survey was even weaker, showing a 348K loss in employment. That survey is noisier, but the truth is likely somewhere between the two surveys.
- Average weekly hours fell to 34.3, the very bottom end of the range we typically see during good economic times. Overtime hours also fell, suggesting that demand for labor slackened.
- Unemployment ticked up to 3.9%, rising most for the youngest workers aged 16-24, who saw it rise from 8.5% to 8.9%. The unemployment rate was 3.4% as recently as April. The broader U-6 measure of unemployment rose to 7.2%. It was 6.5% in December. The increases suggest that both unemployment and underemployment are on the rise.
- Wage growth slowed to 4.1% over the year from 4.2%. During the past three months, average hourly earnings grew at an annualized rate of just 3.2%—a rate that is actually below that needed to bring inflation down to 2%.
- The diffusion index fell to 52.0 from 61.4 last month, suggesting that job growth narrowed substantially. The manufacturing diffusion index dipped below 50 and fell all the way to 42, suggesting that more manufacturing sub-industries lost jobs than gained them.
The decline in these topline indicators partly explains why job seekers and new hires are feeling more stressed out than they have in over a year. Rising financial strain, paired with declining worker leverage, are taking their toll. The decline in real disposable income last month suggests that consumer spending could cool further in the coming months, putting yet more downward pressure on the labor market.
The good news is that this slowdown is not due to economic fundamentals, but rather due to careful orchestration by the Fed. If it turns out that the Fed and bond markets have gone too far, the Fed holds the keys to turning that around.
Businesses tell ZipRecruiter that they have many vacancies, they want to hire, and they want to expand. But high interest rates are holding them back. If rates start coming down next year, expect that pent-up demand for labor, transportation, building materials and a host of other inputs to be unleashed again.
Take a tour of the report through ZipRecruiter visualizations HERE.
