US adds 261,000 jobs, continued sign of robust job market

U.S. job growth rose at a surprisingly rapid pace in October, defying expectations of a deeper slowdown as the historically tight labor market again showed resilience in the face of aggressive government efforts. Federal Reserve to curb demand.

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

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

Despite these gains, the jobless rate soared to 3.7%, just above its pre-pandemic low.

The scorching labor market has long been a source of discomfort for the Fed as the U.S. central bank seeks to rein in economic growth to tame decades-high inflation. Acute labor shortages have helped push up wages as employers seek to fill vacancies, which has helped fuel inflation.

Fed Chairman Jay Powell called the labor market “overheated” at a press conference on Wednesday after the central bank’s decision to hike the federal funds rate by 0.75 percentage points for the fourth consecutive time. Citing recently released data that showed both a stabilization in labor costs and an unexpected increase in job vacancies, he warned that he did not “see the case for any real easing yet”.

In response to the latest jobs report, which came just days before the US midterm elections that will determine control of Congress, President Joe Biden celebrated the gains.

“We are going to do whatever it takes to bring inflation down. But as long as I’m president, I won’t buy into the argument that the problem is that too many Americans are getting good jobs,” he said.

October’s job gain was fueled by an increase in employment in the health care industry, professional and technical services and manufacturing. The number of jobs in leisure and hospitality also increased by 35,000. Construction and retail trade were among the sectors to report no monthly increase in jobs.

The proportion of Americans employed or looking for work — known as the labor force participation rate — again failed to improve in October, stabilizing at 62.2%. Average hourly earnings rose 0.4%, more than expected and an acceleration from September’s increase. The annual rate stabilized at 4.7%.

Powell warned on Wednesday that wages were “stabilizing” at a level “well above” what would be consistent with inflation returning to the Fed’s 2% target. Despite evidence that the economy is not cooling as quickly as expected, the president signaled this week that the Fed would consider reducing the pace at which it raises interest rates. This potential shift could come as early as the December meeting or the one after, given not only the magnitude of the rate hike this year, but also the lagged effect of policy changes on the real economy.

Susan Collins, president of the Boston Fed, announced her support for a slower pace of rate hikes on Friday. “Smaller increases will often be appropriate as we work to determine the degree of tightening necessary to achieve a sufficiently restrictive funds rate level,” she said.

Also on Friday, Richmond Fed President Thomas Barkin supported a slower pace of gains.

The potential course adjustment from the US central bank comes after pushing the federal funds rate to a range between 3.75% and 4%, a level that will dampen activity more sharply.

Powell clarified that a slower pace would not mean a relaxation in the fight against inflation, however, he warned that the key rate would reach higher levels than expected. Following the latest jobs report, markets have now priced in the fed funds rate to a high above 5% next year.

A so-called higher terminal rate further reduces the chances that the Fed can avoid tipping the economy into a recession, economists warn, with the jobless rate likely to top 5%.

Bob Michele, head of fixed income, currencies and commodities at JPMorgan Asset Management, said the Fed’s “sole priority” right now was to lower inflation, and that Powell on Wednesday had tried to “tell the market they weren’t going to pivot or pause [because] they are always worried about inflation”.

US government debt initially came under renewed selling pressure on Friday, but reversed much of that trend. The 10-year Treasury yield — a benchmark used to set borrowing costs for consumers, businesses and other governments around the world — held steady at around 4.13%. Yields increase when the price of a bond falls.

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

Thomas Simons, an economist at Jefferies, said payroll growth and wages aren’t slowing fast enough. “That keeps another 75 basis point hike on the table for December. [Fed] meeting, although we obviously have a lot more data by then,” he said.