October jobs report surprises again, but signs of weakening creep in

Even with the labor market slowing, nonfarm job growth beat expectations in October, according to the newest employment report from the U.S. Bureau of Labor Statistics (BLS).

Nonfarm payrolls rose by 261,000 during the month, the smallest monthly addition since December 2020. But October’s gain still handily beat the 200,000 estimated additions forecast by a Reuters poll of economists, and September’s employment increase was revised from 263,000 to 315,000 to boot.

Job gains were spread out over a variety of sectors, with health care adding 53,000 jobs, and professional and technical services growing by 43,000. Manufacturing saw 32,000 jobs added in October, while leisure and hospitality also saw notable growth with 35,000 new positions. Construction, despite the ongoing (and growing) weakness in real estate markets, held steady, with employment growth in the sector essentially flat.

Labor resilience in several segments, including manufacturing and construction, could be explained in part to the “net birth-death model,” a measurement used by BLS to track the effects of business starts and closures on the job market. Some experts have attributed artificially inflated payrolls to a recent jump in new business creations.

“We noted … that the birth-death factors to the payroll survey have been unusually large over the past year, reflecting the extraordinary rate of new business creation since the pandemic,” Wells Fargo economists Sarah House and Michael Pugliese wrote in commentary for the bank. “October’s beat looks to be at least in part due a record boost for this time of year. The birth-death add-factor to the non-seasonally adjusted level of payrolls was 455,000, more than the previous October high of 363,000 last year and well above the 18-year average of 140,000.”

Furthermore, while the headline numbers remain impressive, some details in the report are showing that the job market is starting to weaken. According to the report’s household survey, for example, the number of unemployed workers grew by 306,000, inching the unemployment rate up to 3.7%. Wages also are slowing, with average hourly earnings up 4.7% year over year, the slowest pace of annual growth since August 2021.

The wage-growth figure is a big one to watch for inflation trackers, with many hoping that dampened earnings will be a leading indicator of declining inflation. It’s also a key number to watch for housing market stakeholders, who are hoping for the Fed to ease off on its hawkish rate increases to give real estate sales a bit more juice.

“The Fed may still be hoping to engineer a ‘soft landing,’ but its top priority is cooling inflation,” said Odeta Kushi, deputy chief economist for First American Financial Corp. “Despite slowdowns in industries such as housing, the Fed will wait for sustained signs of cooling in the labor market – wage growth – before easing the pace of rate hikes.”


More Headlines