Why the ‘Good’ Jobs News Is Tentative

Friday’s employment data has experts trying to parse the implications of what happened with jobs in October. It’s tough, because things are moving in various directions and trying to guess what the Federal Reserve might do with future interest rate hikes is difficult.

The 261,000 jobs created in October is historically strong; economists had expected a number closer to 200,000, according to the New York Times. But as Economic Policy Institute president Heidi Shierholz noted on Twitter, that jobs number is far off the average pace of 539,000 per month from the first quarter of 2022.

Meanwhile, the increased unemployment rate, at 3.7 percent, is “up for the wrong reasons”—meaning fewer people are working and fewer are looking for work—according to a tweet from Andrew Stettner, a senior fellow at the Century Foundation. When people aren’t looking for work, federal data treats them as no longer part of the workforce. If they are no longer in the workforce, they don’t count as unemployed.

In addition, 306,000 more people were considered unemployed in October than in September. And, for any wondering, Hurricane Ian had no discernible impact, according to the Bureau of Labor Statistics (BLS).

At the same time, however, many people are working more than full-time, according to a statement from ManpowerGroup president and chief commercial officer Becky Frankiewicz. “We are seeing a wave of ‘over-employment,’ with a record number of Americans pulling double-duty, taking on second full-time jobs to supplement their income and offset higher-than-normal day-to-day and holiday shopping expenses,” she wrote.

One big driver of that trend is inflation. “Over the past 12 months, average hourly earnings have increased by 4.7 percent, not keeping up with inflation,” noted Jeffrey Roach, chief economist for LPL Financial, in an email.

“The labor force participation rate ticked down to 62.2 percent and has yet to budge from its range of 62.2 percent to 62.4 percent since March, further underscoring the lack of available workers in the economy,” wrote Dr. David Kelly and Stephanie Aliaga of J.P. Morgan Asset & Wealth Management.

So, the labor market is tight, people aren’t making enough money to keep up with inflation, and the reason for falling employment is likely a lack of individuals available to take jobs, with the number of openings jumping in September to 10.7 million.

“What does this mean for the economy—and markets?” Brad McMillan, chief investment officer for Commonwealth Financial Network, asked in a note. “The Fed will welcome the slowdown in job and wage growth, but they still likely remain too high to contain inflation, so expect continued tight policy in the short run. As long as job growth stays healthy, so will demand growth and so will inflation. But the slowing trend is good news and suggests we might be back to something like normal in the next six months or so—which could lead to a Fed pause.”

But it also might mean that there are not enough people to do jobs in the future, which would lead to more upward pressure on wages, creating more challenges for the Fed.

In the immediate future, a 50 basis point (bps) increase to the federal funds rate is still likely in December.

From: BenefitsPRO