October Job Growth Slowest Since Dec. 2020

Unemployment rate up for all the wrong reasons

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Zack here, filling in for Anirban. For a few months, we’ve been saying that good economic news is actually bad (and vice versa), the idea being that until the economy starts to weaken, the Fed is going to keep raising rates. Today’s jobs report has some mixed signals but, on balance, probably falls into the good-news-that’s-actually-bad category.

U.S. employers added 261,000 net new jobs in October. That’s the fewest new jobs in a month since December 2020, but it’s more new jobs than the average monthly growth for every year from 2000-2020, so job growth is slowing but remains pretty fast by historical standards.

The unemployment rate rose to 3.7% in October, up from 3.5% in September, and is now just above the lowest rate in half a century. Put another way, it’s higher than it was last month but still really, really low. Given our severe labor shortages, we want to see the unemployment rate rise (modestly). That would indicate that the gap between the supply of and demand for workers is closing, which would be a good sign on the inflation front.

Unfortunately, the unemployment rate increased for the wrong reasons. The labor force shrank by 22,000 people (now down in four of the past five months), and the labor force participation rate ticked down 0.1 pp to 62.2%. In a perfect world, or a better world, or at the very least a better jobs report, the unemployment rate would have risen due to more labor force entrants.¹

Average hourly earnings are up 4.7% year over year, which is the smallest annual increase since August 2021 but still higher than typical. On a monthly basis, average hourly earnings increased by $0.12 for the month (+0.4%), which is a little bit faster than in August or September.

The optimist’s view: job growth is slowing but remains fast enough to support economic expansion, year-over-year wage growth is coming back to earth, and maybe, just maybe, the Fed can pull off a soft landing.

The pessimist’s view: the labor force is shrinking, job growth is still too hot, monthly wage growth just accelerated, and the Fed is going to nose-dive the economy into a deep recession.

I think I’m with the pessimists on this one. Sure, the demand for labor is cooling, but not nearly fast enough. Until it does, inflation is going to remain too high, and the Fed will keep raising rates. It pains me to say this, but it looks increasingly likely that Anirban is right and we’re hurtling toward recession in 2023.

There was a ton of other economic data (a fair amount of it supporting the pessimists’ view) that we’ll cover in the Week in Review post later today. That’s only for paid subscribers, so if you’re interested, click the button below:

As always, you can read Anirban’s in-depth thoughts regarding the construction industry’s labor market at Associated Builders and Contractors.

Three (somewhat) Key Takeaways

1. Private sector employment is 1% (1.3 million jobs) higher than in February 2020. Government employment is 2.3% (529,000 jobs) lower than in February 2020.

2. The employment-to-population ratio for 16–19-year-olds rose to 32.7%, which is 0.2 pp above the pre-pandemic level and 7.6 pp above the all-time low seen in June 2010. This is still crazy low by historical standards. At the peak in August 1978, exactly half of 16–19-year-olds were employed.

3. In October 2021, the unemployment rate for mining, quarrying, and oil and gas extraction workers was 10%. In October 2022, it was 0.8%. Surprisingly, that’s not the all-time low; in October 2005, the unemployment rate for those workers was 0.3%.

What to Watch

Inflation. New Consumer Price Index data on Thursday.

Want to see Anirban’s new 2023 Presentation?

It’s called Show Me the Money (Supply), and the theme is Tom Cruise movies. If you want to book a presentation (in person or virtual), please contact his assistant Julia (jcomer@sagepolicy.com).

1. You’re probably wondering how employment increased, the labor force shrank, and the unemployment rate went up. Payroll job growth is measured by a survey of business establishments, while the labor force and unemployment rate are measured by a survey of individual people. There are reasons that those two surveys don’t always align, but I don’t think many people reading this newsletter want to get that far into the weeds.