Despite signs of slowing, the Labor Market Remains Tight
November 4th, 2022
US businesses continued to add jobs at a solid pace last month, but the unemployment rate also rose, sending mixed signals as the Federal Reserve debates how far rates need to rise to slow elevated inflation. According to the Labor Department, businesses added 261,000 jobs last month after a revised 315,000 gain in September. The unemployment rate increased to 3.7 percent from 3.5 percent and participation fell one percentage point. In comparison, the consensus estimate was for a 193,000 increase in payrolls and for the unemployment rate to increase to 3.6 percent.
While headline nonfarm payrolls exceeded expectations, the household survey looked completely different. Employment fell by 328,000 and unemployment rose by 306,000, which helped push the unemployment rate to 3.7 percent. Bloomberg Economics notes that the household survey, which is used in the calculation of unemployment statistics, tends to be more volatile than the headline nonfarm payroll number. Nonetheless, economists and analysts typically place more stock in the headline number compared to the household survey.
Healthcare led job gains, adding 53,000 positions, while professional and technical services jobs rose by 43,000, and manufacturing by 32,000. Leisure and hospitality also posted solid growth, up 35,000 jobs, though gains have slowed from levels seen last year. The group is averaging gains of 78,000 a month this year, compared with 196,000 last year. Despite the upcoming holiday shopping season, retail posted a small gain of 7,200 jobs. Wholesale trade added 15,000 jobs, while transportation and warehousing jobs increased by 8,000.
In October, wage growth accelerated to 0.4 percent month-over-month while decelerating to 4.7 percent growth on an annual basis. The deceleration in the annual figure can be attributed to negative base effects. However, when looking at other wage measures like the Fed-preferred ECI and the Atlanta Fed wage tracker, Bloomberg Economics estimates that the true pace of wage growth is around 5 percent, which is far too elevated for the Fed.
It is a bit concerning that participation remains sluggish, especially among those in their prime age. With the Fed expecting to see a rise in unemployment, weak participation indicates that it isn’t going to get much support from more supply, which would be a better way to ease the tight labor market. Bloomberg economists do not see much room for labor supply to recover given the aging population, which means they think wage growth could be harder to slow. Furthermore, recent data from the JOLTS survey show job openings remain elevated, as businesses continue to compete for workers.
As noted, the October employment report was mixed, with continued strong gains on the payroll survey while the household measure showed a decline in employment and a rise in unemployment. Taking into account other labor market metrics, such as the JOLTS report, Fed Atlanta wage tracker, and the ECI, the labor market still seems far from being consistent with inflation coming down to 2 percent. While it is important to remember that labor market statistics such as payrolls are lagging indicators, there was not much in this report to suggest that the Fed will shift its hawkish bias anytime soon.
Alex Dietz
Senior Research Analyst
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