U.S. Employment (October 2023)

Hiring slows in October, unemployment rate rises to a near two-year high of 3.9%

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Non-farm payroll employment rose by 150k in October, slightly below expectations calling for a gain of 180k. Employment readings for the two prior months were revised lower, subtracting 101k from the previously reported figures.

Hiring over the last three-months averaged 204k jobs per-month, a stepdown from the 233k averaged between July-September and well off the 334k averaged over the three-months ending in January.

Private payrolls rose just 99k, with gains entirely concentrated in the service sector (+110k) while goods-producing industries shed 11k jobs. However, the pullback in the latter was entirely concentrated in manufacturing (-35k), which was largely attributed to the UAW strike – estimated to have temporarily removed 33k workers from payrolls. Across the service sector, gains were largely concentrated in healthcare (+77k), but professional & business services (+15k) and leisure & hospitality (+19k) also chipped in. Hiring across the public sector remained robust, rising by 51k last month.

In the household survey, employment (-348k) fell by more than the labor force (-201k), which pushed the unemployment rate to a near two-year high of 3.9%. The participation rate edged down by 0.1 percentage points to 62.7%.

Average hourly earnings were up 0.2% month-on-month – a modest deceleration from the upwardly revised 0.3% m/m gains recorded in each of the two months' prior. The 12-month change slipped to 4.1% – the slowest pace of wage growth since June 2021.

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Job growth slowed considerably in October, with the U.S. economy adding the fewest jobs in four months and recording the second weakest monthly gain since December 2020. That said, some of the 'softness' can be chalked up to labor strikes spanning the auto, entertainment, and healthcare industries, as striking workers aren't counted on payrolls. The Bureau of Labor Statistics estimates that just over 48,000 workers were on strike during the survey period last month – the highest monthly total since February 2004. However, with tentative labor agreements between the UAW and the Big 3 automakers now reached, a significant number of these workers will be recounted in next month's payrolls.

In the press briefing following Wednesday's interest rate announcement, Chair Powell acknowledged that the recent tightening in financial conditions (if sustained) could act as a substitute for future rate hikes. However, Powell also underscored that policymakers have a low conviction on whether today's policy stance is 'sufficiently restrictive' – hence the need to proceed carefully and take a meeting-by-meeting approach. We suspect the Fed will need to see a few more softer employment reports met by a further easing in inflationary pressures before they have enough evidence to call it quits.