The U.S. labor market saw far fewer job additions than expected in October as strikes and harsh weather conditions weighed heavily on employment figures. According to data released by the Bureau of Labor Statistics (BLS) on Friday, the U.S. economy added only 12,000 jobs in October, far below economists’ forecast of 100,000. The unemployment rate remained steady at 4.1%, partly due to the way BLS collects data. Workers who had jobs but earned no income in the month weren’t counted as unemployed in the household survey, but were also not counted as employed in the payroll survey.
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October’s job additions fell sharply from the revised 223,000 in September. The monthly job figures for August and September were also revised downward by a combined 112,000. Experts had warned beforehand that the Boeing strikes and recent hurricane disruptions would likely impact the October employment data, and the BLS confirmed this in the report. “It is likely that payroll employment estimates in some industries were affected by the hurricanes,” BLS stated. However, due to the survey’s methodology, it is not possible to isolate the exact impact of extreme weather events on the national figures.
Manufacturing Takes a Major Hit from Strikes
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The BLS reported that manufacturing jobs dropped by 46,000 in October, primarily due to strike activity. Boeing’s machinist strike, which has lasted for over seven weeks, significantly impacted the manufacturing sector, making it difficult for the U.S. economy to rebound in the short term.
Meanwhile, wage growth, a key measure of inflationary pressure, continued to rise. Year-over-year wage growth reached 4.1% in October, compared to 4% in September. On a monthly basis, wages rose 0.4%, up from 0.3% the previous month. However, labor force participation dipped slightly from 62.7% to 62.6%, indicating that some workers may have exited the workforce.
This October report is the last significant economic release before the Federal Reserve’s policy meeting on November 7. However, it didn’t significantly alter market expectations regarding the Fed’s upcoming decision. As of Friday morning, markets predicted a 99% chance that the Fed would cut interest rates by 25 basis points in the next meeting, up from a 95% chance a week prior, according to the CME FedWatch Tool.
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Signs of a Cooling Labor Market Beyond the Monthly Report
Aside from the monthly employment report, other recent data also indicate that the U.S. labor market is gradually cooling down. Data released on Tuesday by the BLS showed that job openings in September fell to their lowest level since January 2021. The quits rate, an indicator of worker confidence, dropped to 1.9% in September from a revised 2% in August—the lowest level since June 2020.
According to Sonu Varghese, global macro strategist at Carson Group, the broader picture suggests a cooling labor market, even apart from hurricane effects. He noted that this trend might keep the Fed on track for rate cuts in November and December. For those concerned about inflation, this is promising, as lower rates can help support the economy without overly increasing borrowing costs.
Economists’ Perspective on a Cooling Labor Market
Joe Brusuelas, chief economist at RSM, recommended focusing on the steady 4.1% unemployment rate rather than the unexpectedly low job additions. “This is all just noise,” he said, downplaying the temporary fluctuations in job numbers.
The reduced job additions and stable wage growth indicate that the U.S. economy may be shifting to a “softer” state, easing pressure on the Fed to manage inflation. However, the dip in labor force participation and the slower wage growth are also signs that workers may be feeling more cautious amid economic uncertainty.
Implications for Politics and Market Expectations
The October job report could impact President Biden’s re-election campaign as economic issues weigh on voters’ minds ahead of the November 5 election. Weak labor data could reduce voter confidence in the government’s economic management. The upcoming Fed decision to potentially cut rates highlights concerns over employment and inflation, increasing pressure on the administration to maintain economic stability.
The Future of the U.S. Labor Market
Economists and financial experts largely predict that the U.S. labor market will continue to cool in the coming months, especially as the Fed is likely to implement further measures to curb inflation. However, the fluctuations in October’s labor market data have painted a complex picture and pose new challenges for the Fed’s upcoming policy decisions.
