Drop in hiring hints inflation cooling down

October’s 150,000 jobs still a strong count, say analysts

WASHINGTON — The nation’s employers slowed their hiring in October, adding a modest but still decent 150,000 jobs, a sign that the labor market is cooling but remains resilient despite high interest rates that have made borrowing more costly for companies and consumers.

Last month’s job growth, though down from 297,000 gain in September, was solid enough to suggest that many companies still want to hire and that the economy remains sturdy. And job growth would have been higher in October if not for the now-settled United Auto Workers’ strikes.

“This report shows a lot of weakening on the surface, but it was clearly clouded by a lot of strike activity that now seems to be resolved,” said Aaron Terrazas, chief economist at Glassdoor. “Once you squeeze past the one-off shocks in October, it’s actually a relatively strong report.”

Friday’s jobs report from the government comes as the Federal Reserve is assessing incoming economic data to determine whether to leave its key interest rate unchanged, as it did this week, or to raise it again in its drive to curb inflation. The lower job growth in October, along with a slowdown in pay gains last month, could help convince the Fed that inflation pressures will continue to cool and that further rate increases may not be needed.

On Wall Street, traders appeared to signal their growing belief in that scenario. Bond yields fell and stock prices rose sharply after the jobs report was released.

The unemployment rate rose last month from 3.8% to 3.9%. And in another sign of a possible softening in the labor market, the Labor Department revised down its estimate of job growth in August and September by a combined 101,000.

The UAW strikes contributed to an overall loss of 35,000 factory positions in

October. Several other sectors posted solid job gains last month, notably health care, which added 58,000, government agencies 51,000 and construction companies 23,000.

By contrast, the vast leisure and hospitality sector, which includes bars, restaurants and hotels, reported only modest job growth. So did professional and business services, a category that includes such high-paying occupations such as accounting, engineering and architecture.

Wage pressures, which have been gradually slowing, eased further in October. Average hourly pay rose 0.2% from September and 4.1% from 12 months earlier. The year-over-year wage increase was the lowest since June 2021; the month-over-month rise was the smallest since February 2022.

The Fed has raised its benchmark interest rate 11 times since March 2022 to try to slow the economy and tame inflation, which hit a four-decade high last year but has slowed sharply since then. In September, consumer prices rose 3.7% from a year earlier, down drastically from a year-over-year peak of 9.1% in June 2022 but still well above the Fed’s 2% target level.

The U.S. job market has remained on firm footing despite those rate increases and has helped fuel consumer spending, the primary driver of the economy. Employers have now added a healthy 204,000 jobs a month over the past three months. The combination of a solid economy and decelerating inflation has raised hopes that inflation will be curbed without triggering a recession.

Claudia Sahm, a Fed economist from 2007 to 2019 and the architect of a trusted recession indicator, said the October report did not suggest “a good direction” for the labor market. But she said it would take a longer-term rise in unemployment to signal an approaching recession.

Throughout the year the economy has defied forecasts of a downturn, even as inflation lingered, driving down consumer sentiment and, to some extent, business confidence.

“This is still a good labor market,” said Nick Bunker, head of economic research at the Indeed Hiring Lab. “There’s no recession right now that you can see in the labor market data.”

For the Fed, one unwelcome note in Friday’s report is that the number of people in the labor force — those who either have a job or are looking for one — fell by 201,000 in October. It was the first such drop since April. Over the past year, more than 3 million people have entered the workforce, making it easier for companies to fill job openings. This has reduced pressure on employers to increase pay and pass on their higher labor costs to their customers with higher prices. But the trend was broken last month.

Since matching a half-century low of 3.4% in April, the nation’s unemployment rate has edged up. The 3.9% rate in October was the highest level since January 2022. Historically, any unemployment rate below 5% has been considered healthy.

“There’s a clear upward trajectory in the unemployment rate,” Bunker said. “It’s not at the point where it’s tripping any alarms or causing blinking, flashing red lights … but it is something to monitor.”

The Fed’s policymakers are trying to calibrate their key rate to simultaneously cool inflation, support job growth and ward off a recession. Despite long-standing predictions that the Fed’s ever-higher rates would trigger a recession, the U.S. economy grew at a 4.9% annual pace from July through September, the fastest quarterly expansion in more than two years.

And many companies are still looking to hire — and benefiting from the job market’s slowdown.

One of them is Saltbox, which offers co-working space and warehouse services for small businesses in 10 states. Last year, the company felt compelled to raise pay from $15 to $20 for hourly workers who load merchandise on trucks and do maintenance work. Now, Tyler Scriven, the company’s founder and chief executive, no longer sees a need to further raise pay.

“The pressure of raising wages,” Scriven said, “is easing. I would go further to say that at this point, I don’t really feel any pressure.”

Likewise, Omaha Steaks had struggled since the start of the pandemic with a big problem: Christmas holiday-season employees who didn’t show up for the first day of work, particularly at its distribution centers. At the time, no-show employees were a major headache for many companies. A year ago, Omaha Steaks, which has been shipping meats directly to consumers since 1952, had to hire 10% more holiday workers to account for the high quit rate.

This year, based on the past few weeks of holiday hiring, the show-up rates have improved markedly. It’s a sign that Nate Rempe, the company’s president and chief operating officer, said he thinks reflects a more normal job environment. Omaha Steaks, based in Omaha, Neb., no longer has to hire extra holiday workers to make up for the no-shows. In fact, it’s hiring modestly fewer people.

“They actually want to get to work, which we love to see because it’s good for business,” Rempe said.

Many market analysts are telling clients that unless a major shock occurs, the economy could keep chugging along, albeit at a more sluggish rate. Layoffs, a constant worry, are well below historical averages. And measures of labor-force productivity have made impressive gains as well in recent months.

“A rock-solid American jobs market rolls on albeit at a moderating pace,” said Joe Brusuelas, chief economist for accounting firm RSM, pushing back against the protruding sense of gloom of some commentary. “Income gains continue to outpace inflation, which bodes well for consumption heading into the traditional holiday spending season.”