The labor market has been consistently strong since the U.S. economy began to recover from the shock of the pandemic. However, there are signs of a slowdown as the holiday season approaches.
According to the Labor Department, employers added 150,000 jobs in October, falling short of economists’ forecasts. Additionally, hiring figures for August and September were revised downward, resulting in a decrease of over 100,000 jobs. The unemployment rate also rose to 3.9 percent from 3.8 percent in September.
However, there were some extenuating factors in the data. Around 96,000 people reported being out of work due to strikes or labor disputes, primarily resulting from auto industry walkouts that have since ended.
When accounting for these factors, job creation still appears healthy, with a three-month average of 204,000, which is a robust pace compared to historical standards. The economy has consistently generated job gains for 34 consecutive months.
Market reactions to the news were positive, as the signs of a cooling labor market reinforced expectations that the Federal Reserve would hold off on further interest rate increases to combat inflation. Bond prices rose and stocks continued to gain for the fifth consecutive day.
Recent decelerations in wage growth have been encouraging to Fed policymakers, who worry that rapidly growing incomes can lead to higher prices. The report showed average hourly earnings in October were slightly below expectations, increasing by 0.2 percent from the previous month and 4.1 percent from a year earlier.
Although the October report did not suggest a positive direction for the labor market, it would take a longer-term rise in unemployment to signal an approaching recession, according to Claudia Sahm, a former Fed economist. The economy expanded at a 4.9 percent annualized rate from July through September, and despite concerns about inflation and lower consumer sentiment, it has defied expectations of a downturn.
The economy has experienced significant disparities, with median household net worth increasing while the poverty rate has ticked back up. The Fed’s increase in interest rates, however, could impact low-income borrowers and indebted businesses as winter approaches. The housing market has already been affected by a lack of supply and rising mortgage rates, which have made home buying difficult for many middle-class individuals.
On the corporate front, low borrowing costs have allowed companies to fund their operations easily. However, interest rates are expected to remain elevated next year, which could pose challenges for businesses seeking financing. Small businesses are already facing higher debt burdens, paying approximately 10 percent interest on short-term loans, according to the National Federation of Independent Businesses.
Despite these challenges, small businesses continue to add workers at sustained but modest rates, according to John Gibson, the CEO of Paychex, a payroll services company. Layoffs are also below historical averages, and there have been impressive gains in labor force productivity in recent months.
According to Joe Brusuelas, chief economist for the accounting firm RSM, the American jobs market remains solid, albeit with a moderating pace. Income gains continue to outpace inflation, which bodes well for the holiday spending season. Forecasts for the coming year are more mixed, with 49 percent of economists, Wall Street strategists, and market analysts expecting a recession in the next 12 months, while 42 percent predict a “soft landing” with abating inflation but no broad contraction.
Despite dour consumer sentiment, general economic data has shown resilience, with inflation decreasing from its peak in 2022. However, many Americans are still struggling with affordability issues in housing, healthcare, and child care, exacerbated by cumulative increases in consumer prices.
Several fresh concerns are occupying the minds of households, markets, and economists as well. The end of the suspension of mandatory federal student loan repayments in October is expected to impact the budgets of many. A government shutdown could also affect markets and employment if funding is not agreed upon beyond November 17. On the geopolitical front, tension in the Middle East poses risks that could have serious consequences on oil supplies and U.S. energy prices. However, so far, the impact has been limited.
Overall, the $27 trillion American economy is unlikely to be pulled into a recession easily, despite the downward pressures. U.S. households are in a better financial position compared to 2019, with increased inflation-adjusted net worth.
Tenisha Hodges from Detroit is one individual who has seen improvements recently. After losing her job as a hotel manager due to lockdowns, she found employment as a temporary worker at Chrysler. Under a new contract agreement, temporary workers like Hodges will be able to gain permanent status and potentially see a significant increase in pay.
Hodges expressed her excitement, saying, “It’s life-changing and puts me in a position where I can afford to drive a vehicle for the company I work for. That’s a very proud thing for me.”
