The labor market is gradually softening, but it remains hotter than economists had predicted after the Federal Reserve’s months-long campaign to control inflation.
Major U.S. stock indexes all closed up more than 1 percent on Friday after the news came out.
“This report confirms what we’ve been seeing — that the labor market remains strong because the U.S. consumer remains resilient,” said Julia Pollak, chief economist at ZipRecruiter. “If demand for companies’ goods and service remains strong, they will keep hiring. This remains the best job seekers’ market of all time.”
The jobs report arrives just days before the midterm elections where Republicans are increasingly favored to win control of Congress. The state of the economy, with inflation at 40-year highs, has played a central role in campaign messaging from the GOP.
President Biden praised the report in a statement, saying it showed “our jobs recovery remains strong,” and called out Republicans for backing policies he said would fuel inflation: “As long as I’m president, I’m not going to accept an argument that the problem is that too many Americans are finding good jobs.”
The labor market remains a pillar of strength for the overall economy, and it’s been stubbornly resilient even in the face of the Federal Reserve’s aggressive interest rate hikes. The central bank announced its sixth interest rate increase of the year Wednesday despite a growing consensus among economists that a recession is likely to hit next year.
“The message that the Fed will take away from this is that the labor market is still mostly unaffected by the Fed’s tightening,” said Cailin Birch, the lead U.S. analyst for the Economist Intelligence Unit. “Job creation is slowing, and we still expect a recession, but signs of a heavy impact aren’t appearing yet.”
Job gains were widespread across a variety of industries. Health care saw the largest gains with 53,000 jobs added, with notable increases in ambulatory health-care service, nursing facilities and hospitals. Professional and technical services added 43,000 jobs, with notable growth in management and technical consulting service, architectural and engineering services and scientific research and development. Manufacturing added 32,000 jobs, mainly in durable goods industries. Employment in leisure and hospitality also continued to grow, with 35,000 jobs added, but the sector remains 1.1 million jobs below its pre-pandemic levels.
Industries most sensitive to the Fed’s interest rate hikes, such as real estate and construction, have cooled off some. The construction industry showed little change from September, while real estate and rentals and leasing saw an 8.7 percent decline in job growth.
Other parts of the economy have slowed already in response to the Federal Reserve’s rate increases. Consumer spending on goods and real estate has fallen. Mortgage rates, at above 7 percent, have more than doubled this year.
“The combination of slower manufacturing, the housing market running into a brick wall and consumers being more cautious is contributing to a slowdown in labor demand,” said Bill Adams, chief economist for Comerica Bank, a large commercial bank in Texas.
The labor force participation rate ticked down slightly to 62.2 percent, an indicator that economists had hoped to see rise. It remains 1.2 percent lower than its February 2020 level. Economists attribute the decline in part to the aging population of boomers who are retiring and to elevated consumer demand that has pushed employers to rapidly create jobs.
“The weakening labor force participation rate is concerning because it shows job market is cooling in the wrong way,” said Daniel Zhao, the lead economist at the jobs site Glassdoor. “It’s unusual to see labor force participation falling because the labor market is hot — which should be pulling workers in off the sidelines.”
Wage growth has accelerated slightly in October. Average hourly earnings rose by 0.4 percent, to $32.58. Overall average income growth has outpaced inflation. But workers’ hourly earnings have not kept up with inflation.
Job openings rose in September to 10.7 million positions, up from 10.3 million in August, according to a different report released by the Labor Department on Tuesday, suggesting that employers are still desperate for workers. The biggest increases were in leisure and hospitality, an industry that has struggled to regain workers lost during the pandemic, but where consumers have shifted their spending in the pandemic recovery economy.
“There’s a giant backlog of unfilled positions that has prevented a slower pace of overall economic growth from flowing into the labor market, but that can’t last forever,” Adams said.
Many workers are also increasingly interested in taking second jobs and requesting longer extra hours as inflation has pinched their pocketbooks.
“I envision we’ll see people taking on more part-time work,” said Amy Glaser, senior vice president for business operations at the global staffing firm Adecco, of the coming months. “Workers we surveyed felt wage increases weren’t enough to offset inflation.”
The number of workers quitting their jobs fell slightly in September, as did the number of new hires, suggesting that workers are less confident in their ability to find better work opportunities. Also, employers are reacting to recession fears by putting a pause on hiring.
“I’m expecting to see employers reducing their employee count through attrition over next six to 12 months, and an increase in labor force participation with the cost of living pulling more people off the sidelines, particularly older Americans having increased difficulty making ends meet,” Adams said.
Myriad tech companies recently unveiled plans to cut back. Amazon announced on Thursday a pause in corporate hiring amid uncertainty about the economy. (Amazon founder Jeff Bezos owns The Washington Post.) Lyft and Stripe, the processing payment platform, also just announced mass layoffs, as did Twitter, under new owner Elon Musk. But layoffs have remained low overall.
Democrats in Congress, such as Sen. John Hickenlooper (Colo.) and Senate Banking Committee Chairman Sherrod Brown (Ohio), have urged the Fed to back off its fight to cool the economy before it puts workers’ livelihoods in jeopardy and triggers more widespread hardship.
Labor leaders, including AFL-CIO President Liz Shuler and the Service Employees International Union President Mary Kay Henry, have echoed these demands, describing the interest rate hike announced Wednesday as “devastating for working people” and “a policy choice to balance the economy on the backs’ of working people.”
Officials at the Federal Reserve said on Wednesday that they’ve been keeping close watch over rising wage growth as an indicator of whether inflation could become entrenched, and a decline in the number of job openings as a sign that they can achieve a “soft landing,” where employer demand for workers retreats without triggering widespread job losses.
Fed Chair Jerome H. Powell said the window for a soft landing has narrowed over the course of the year, but that the bank plans to move forward with more interest rate increases because persistent inflation would be more damaging than a recession.
“We keep looking for signs of a sort of beginning of a gradual softening” of the labor market, he said. “Maybe it’s there, but it’s not obvious to me.”
The tight labor market has been good for workers. Margaret Manalo, a single mom and lounge attendant at San Francisco International Airport’s Delta Sky Club, recently received a $3 per hour raise after her union went on strike for three days over wages that had not increased since 2019. Her pay jumped from $20 to $23 per hour, but she’s still living paycheck-to-paycheck.
“The raise has helped me a lot,” said Manalo, 48. “I can now afford treatment for my two daughters’ eczema. Hopefully I can put some money in savings now, but prices have gone up a lot.”