U.S. payrolls elevated by 150,000 in October, lower than anticipated

The U.S. economy saw job creation decelerate in October, confirming persistent expectations for a slowdown and possibly taking some heat off the Federal Reserve in its fight against inflation.

Nonfarm payrolls increased by 150,000 for the month, the Labor Department reported Friday, against the Dow Jones consensus forecast for an increase of 170,000. The United Auto Workers strikes were primarily responsible for the gap as the impasse meant a net loss of jobs for the manufacturing industry.

The unemployment rate rose to 3.9%, against expectations that it would hold steady at 3.8%. Employment as measured in the household survey, which is used to compute the unemployment rate, showed a decline of 348,000 workers, while the rolls of the unemployed rose by 146,000.

A more encompassing jobless rate that includes discouraged workers and those holding part-time positions for economic reasons rose to 7.2%, an increase of 0.2 percentage point.

“Winter cooling is hitting the labor market,” said Becky Frankiewicz, chief commercial officer at staffing firm Manpower Group. “The post-pandemic hiring frenzy and summer hiring warmth has cooled and companies are now holding onto employees.”

Average hourly earnings, a key measure for inflation, increased 0.2% for the month, less than the 0.3% forecast, while the 4.1% year over year again was 0.1 percentage point above expectations.

Markets reacted positively to the report, with futures tied to the Dow Jones Industrial Average adding 100 points.

From a sector standpoint, health care led with 58,000 new jobs. Other leading gainers included government (51,000), construction (23,000) and social assistance (19,000). Leisure and hospitality, which has been a leading job gainer, added 19,000 as well.

Manufacturing posted a loss of 35,000, all but 2,000 of which came because of the auto strikes. Transportation and warehousing saw a decline of 12,000 while information-related industries lost 9,000.

In addition to the October slowdown, the Bureau of Labor Statistics revised lower its counts for the previous two months: September’s new total is 297,000, from the initial 336,000, while August came in at 165,000 from 227,000. Combined, the revisions took the original estimates down by 101,000.

The report comes at an important time for the U.S. economy.

Following a third quarter in which gross domestic product expanded at a 4.9% annualized pace, even better than expected, growth is expected to slow considerably. A Treasury report earlier this week put expected fourth-quarter GDP growth at just 0.7%, and 1% for the full year 2024.

Fed policymakers have deliberately tried to slow the economy in order to tackle inflation that is still running well ahead of the central bank’s 2% annual target. On Wednesday, the Fed’s rate-setting committee chose to hold the line for the second consecutive meeting following a series of 11 hikes since March 2022.

Markets expect the Fed is likely done raising, though central bank officials insist they are dependent on incoming data and still could hike more if inflation doesn’t show consistent signs of falling.

Inflation data has been mixed lately. The Fed’s preferred gauge showed the annual rate fell to 3.7% in September, an indication of steady but slow progress back to its goal.

Surprisingly strong consumer spending has helped propel prices higher, with strong demand giving companies the ability to charge higher prices. However, economists fear that rising credit card balances and increased withdrawals from savings could slow spending in the future.

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