US job growth was weakest in nearly two years in October, unemployment rate up

  • Non-farm payrolls forecast an increase of 200,000
  • The unemployment rate is expected to drop from 3.5% to 3.6%
  • The average hourly wage is expected to gain 0.3%

WASHINGTON, Nov 4 (Reuters) – U.S. employers likely hired the fewest workers in nearly two years in October and raised wages at a moderate pace, suggesting an easing in labor market conditions, which would allow the Federal Reserve to turn to lower interest rate hikes. from December.

The Labor Department’s closely watched jobs report on Friday is also expected to show unemployment rose to 3.6% from 3.5% in September. The Fed hiked interest rates another 75 basis points on Wednesday and said its fight against inflation would require a further increase in borrowing costs.

But the central bank has signaled it could be approaching an inflection point in what has become the fastest monetary policy tightening in 40 years.

“The labor market is basically OK, but it seems to be slowing down,” said Guy Berger, senior economist at LinkedIn.

in San Francisco. “The Fed will try to thread the needle where it is slowing the labor market enough to put downward pressure on wages and inflation, without causing a recession.”

Nonfarm payrolls likely rose by 200,000 jobs last month after rising by 263,000 in September, according to a Reuters survey of economists. It would be the smallest gain since December 2020, when payrolls shrank under an onslaught of COVID-19 infections. Estimates ranged from 120,000 to 300,000.

Employment gains were likely split almost evenly across industry sectors, consistent with recent trends, with the leisure and hospitality industry leading the way. Employment in leisure and hospitality remains below its pre-pandemic level of at least one million jobs. Interest rate sensitive industries such as financial activities and transportation and warehousing likely lost jobs as they did in September. The government wage bill is expected to decline further.

Hurricane Ian is expected to have torn a small dent in the payroll. The storm hit Florida in late September and pushed up unemployment claims in mid-October, when the government polled businesses for last month’s jobs report.

“Hurricane Ian is expected to have at least a downward impact on nonfarm payrolls,” said Lou Crandall, chief economist at Wrightson ICAP in Jersey City. “We’ve lowered our forecast slightly to show an increase of 150,000 (from 200,000) assuming at least some workers were sidelined in areas hardest hit by the hurricane.”

FILLING STATIONS

Job growth remained solid even as domestic demand weakened amid higher borrowing costs as companies replaced workers who would have left. But with rising recession risks, this practice may soon come to an end. A survey by the Institute for Supply Management on Thursday found that some service-sector companies are “holding back from filling vacancies” due to uncertain economic conditions.

However, the labor market remains tight, with 1.9 job offers per unemployed person at the end of September.

Average hourly earnings should have risen 0.3%, matching September’s gain. But there is a risk of an upside surprise from Hurricane Ian as well as a timing quirk. According to Wrightson ICAP’s Crandall, storms and other events that keep people away from work during the payroll survey week can artificially raise the reported level of hourly earnings.

The government surveys businesses and households during the week that includes the 12th day of the month.

“The week of the wage survey included the 15th of the month, which tends to skew the month/month change higher up, since wage increases obtained by workers paid mid-month and end-of-month rather than every two weeks are more likely to have been caught,” said Kevin Cummins, chief U.S. economist at NatWest Markets in Stamford, Connecticut.

By removing all distortions due to the vagaries of weather and calendar, wage growth slows. The average hourly wage is expected to rise 4.7% year-on-year in October after rising 5.0% in September. Other wage measures also came out of the boil, which bodes well for inflation.

“We think we’ve peaked in wage growth,” said Michelle Green, senior economist at Prevedere in Columbus, Ohio. “So while we continue to see year-over-year growth in the average hourly earnings of all private sector employees, the speed of that growth is really starting to slow.”

Reporting by Lucia Mutikani; Editing by Cynthia Osterman

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