US Adds 261,000 Jobs, Shows Strong Labor Market

US job growth rose unexpectedly fast in October, contrary to expectations of a larger slowdown, as the historically tight labor market again showed resilience in the face of the Federal Reserve’s aggressive efforts to curb demand.

The economy added 261,000 jobs last month, more than the consensus estimate of 200,000, according to data released by the Bureau of Labor Statistics on Friday. That figure was down from an upwardly revised 315,000 in September and 292,000 in August.

On average, the economy has added 407,000 jobs every month this year, compared to a monthly increase of 562,000 in 2021.

Despite these gains, the unemployment rate rose to 3.7 percent, just above its pre-pandemic low.

A red-hot labor market has long been a source of discomfort for the Fed as the US central bank seeks to rein in economic growth to bring inflation under control, which has been high in decades. A severe shortage of workers has helped lift wages as employers race to fill jobs, fueling inflation.

Fed Chairman Jay Powell called the labor market “overheated” at a press conference on Wednesday following the central bank’s decision. raise the federal funds rate by 0.75 p.p. for the fourth time in a row. Citing recently released data that showed that as the cost of labor remained unchanged, so did the number of vacancies unexpected climbhe warned that he “does not yet see a case for real easing”.

In response to the latest job posting that came out just a few days before US midterm elections which will determine the control of Congress, President Joe Biden celebrated the successes.

“We are going to do our best to bring inflation down. But as long as I’m president, I’m not going to accept the argument that the problem is that too many Americans are getting good jobs,” he said.

Job gains in October were fueled by growth employment in the healthcare, professional and technical services and manufacturing industries. Leisure and hospitality jobs also increased by 35,000. Construction and retail were among the sectors that did not report a monthly increase in positions.

The proportion of Americans working or looking for work, known as the labor force participation rate, did not improve again in October, stabilizing at 62.2 percent. Average hourly wages rose 0.4 percent, more than expected and an acceleration from the September increase. The annual rate has stabilized at 4.7 percent.

Powell warned on Wednesday that wages would “stabilize” at a level that is “well above” what would correspond to a return of inflation to the Fed’s 2 percent target. Despite indications that the economy is not cooling as fast as expected, the chairman signaled this week that the Fed will consider slowing down the pace of interest rate hikes. This potential change could come either immediately after the December meeting or after, given not only how much rates have risen this year, but also the delayed impact of policy changes on the real economy.

Susan Collins, president of the Boston Fed, on Friday expressed support for a slower pace of rate hikes. “Smaller increments will often be appropriate as we work to determine how much tightening is needed to reach fund rate levels that are quite restrictive,” she said.

Also on Friday, Thomas Barkin, president of the Richmond Fed, supported a slower pace of growth.

The potential course correction by the US central bank comes after it raised the federal funds rate to a range of 3.75% to 4%, a level that will more heavily dampen activity.

Powell made it clear that the slower pace does not mean a weakening of the fight against inflation, but he warned that the discount rate will reach higher levels than expected. Since the last jobs report, markets have already priced the federal funds rate to over 5 percent next year.

Economists warn that a higher so-called terminal rate further reduces the likelihood that the Fed will be able to avoid a recession in the economy, as the unemployment rate is likely to exceed 5 percent.

Bob Michel, head of fixed income, currencies and commodities at JPMorgan Asset Management, said the Fed’s “only priority” at the moment is to bring inflation down, and that Powell on Wednesday was trying to “tell the market they’re not going to turn or pause.” [because] they are still worried about inflation.”

US government debt was initially subjected to fresh selling pressure on Friday, but has largely reversed that movement. The yield on 10-year Treasury bonds – the benchmark used to determine the cost of borrowing for consumers, businesses and other governments around the world – remained unchanged at about 4.13 percent. The yield rises when the price of a bond falls.

The S&P 500 rose 1.6% in mid-morning trading.

Thomas Simons, an economist at Jefferies, said wage and wage growth is not slowing fast enough. “That leaves another 75 basis points up in store for December. [Fed] meeting, although obviously we have a lot more data during that time,” he said.