October jobs report a mixed bag
Solid week of employment data keeps Fed aggressive.
The broad-based picture of the labor market across the board was decidedly mixed last week. Nonfarm and private payrolls posted stronger-than-expected gains of 261,000 and 233,000 jobs, respectively, in October. But the household survey surprisingly lost 328,000 jobs last month, sharply below an increase of 204,000 in September. As a result, the unemployment and labor impairment rates rose to 3.7% and 6.8%, respectively, while the participation rate fell for the second consecutive month to 62.2%.
Average hours worked were unchanged for the fifth consecutive month at 34.5, average hourly earnings declined for the second consecutive month to 4.7% on a year-over-year (y/y) basis, but the month-over-month wage gain of 0.4% inched higher. While manufacturing hiring trends remain solid, construction, retail and leisure & hospitality continue to deteriorate. Last week, the September JOLTS report, October ADP private payroll survey and initial weekly jobless claims were all stronger than expected.
More of the same from the Fed In light of the relatively solid across-the-board payroll picture last week, it was completely appropriate for the Federal Reserve to raise interest rates by 75 basis points at its policy-setting meeting last Wednesday. It was the fourth consecutive FOMC meeting that resulted in such a hike. Chair Jerome Powell’s press conference was certainly hawkish, too. To be sure, the Fed remains data dependent. September’s core CPI rose 6.6% y/y in September, a 40-year high, with a critical update for October coming next week. It's possible the Fed could downshift to a half-point hike at the December 14 FOMC meeting if inflation begins to recede.
ADP, JOLTS, Challenger & claims all solid:
- Lagging Job Openings & Labor Turnover Survey (JOLTS) surprisingly rose 4.3% m/m in September to 10.717 million job openings. True, that’s still a 9.6% decline from a record 11.86 million job openings in March 2022, and there are still 1.9 job openings for every unemployed worker. Voluntary quitters slipped to 4.06 million, but their rate held steady at a record 2.7%.
- ADP private payroll survey's October report added a surprisingly strong 239,000 jobs, a 24.5% m/m increase. Importantly, wage growth is sizzling, with a 7.7% y/y increase last month for job stayers and an outsized 15.2% gain for those who changed jobs.
- Challenger job cuts surged in October to a 20-month high, up by 48.3% from a year ago and by 12.9% m/m, with technology cuts still at the top of the list.
- Initial weekly jobless claims, after rising by 57% over the four months from 166,000 claims in mid-March to 261,000 in mid-July, claims have eased by 16% over the past three months to only 217,000 last week.
Strong job gains October nonfarm payrolls were stronger than expected, rising by 261,000, higher than Bloomberg’s estimated consensus gain of 193,000 and our own estimate of 230,000 here at Federated Hermes. Importantly, September was revised up by 52,000 jobs to a gain of 315,000, although August was revised down by 23,000 jobs to a final gain of 292,000. August is historically the quirkiest month of the year, with sizable upward revisions in September and October to smooth over the end-of-summer dislocations from schools re-opening and factories re-tooling.
Unemployment and labor impairment rates rise, participation rate falls The household survey lost 328,000 jobs in October, after three consecutive monthly gains, down from an increase of 204,000 jobs in September. (Household hiring also lost jobs in April and June.) The number of unemployed people rose by 306,000 in October, versus a decline of 261,000 in September. As a result, the unemployment rate (U-3) rose to 3.7% in October, up from 3.5% in September, which had matched its pre-pandemic, half-century low in February 2020. The labor impairment rate (U-6) also rose a tick to 6.8% in October, up from its record low (dating back to 1994) of 6.7% in September, June and July. But the civilian labor force declined by 22,000 workers in October, which marks its fourth decline in the last five months. That drove the participation rate down for the second consecutive month to 62.2% in October, compared to the pre-pandemic cycle high of 63.4% in February 2020.
K-shaped recovery diverges Highly skilled workers saw their rate of unemployment increase a tick to 1.9% in October from September’s cycle low. But the unemployment rate for low-wage workers soared to 6.3% in October from 5.6% in September, well above its 30-year low of 4.3% in February 2022. The personal savings rate fell to a new 14-year low of 3.1% in September (down sharply from 26.3% in March 2021), so unskilled workers are returning to the labor market to look for work as their savings dwindle.
Sector details mixed The manufacturing sector added a better-than-expected 32,000 jobs in October (consensus estimate at 12,000), up from September’s gain of 23,000. August and July added 36,000 and 37,000 jobs, respectively. Construction added only 1,000 new jobs in October, down sharply from gains of 22,000 in September, 9,000 in August and 21,000 in July. Mortgage rates have more than doubled from 3% to 7% over the past 10 months, slowing the housing market significantly. Retail hiring heading into Christmas has been poor, adding only 7,000 new jobs in October after shedding 8,000 jobs in September. In sharp contrast, Back-to-School retail hiring was more robust, adding 29,000 jobs in August, 16,000 in July and 22,000 in June.
Temporary hiring, which is a leading indicator of employment trends, added a solid 12,000 new jobs in October and 13,000 in September, after a loss of 1,000 jobs in August. Leisure & hospitality fell to a gain of only 35,000 jobs in October, down from a gain of 107,000 new jobs in September, but better than a muted gain of only 13,000 in August. However, this three-month average monthly gain of 52,000 workers pales by comparison to the robust hiring pace of about 189,000 last November and December. The slowdown in leisure & hospitality hiring has negatively impacted low-wage workers, whose unemployment rate has surged by 2% over the past eight months.