Back to Work: Fed Could Face More Pressure After October’s Robust Jobs Data

Today’s October jobs report brought a sense of déjà vu with its headline growth number of 261,000. Though September’s data got revised upward today, that number initially came in at 263,000, so overall, hiring remains robust. 

However, the market appears to be focused on a slight uptick in the unemployment rate to 3.7% from the previous month’s 3.5%. But if you’re the Federal Reserve trying to slow down the economy, this isn’t the kind of report you wanted to see.

With the revisions to August and September adding a combined 29,000 jobs, followed by October’s new strong number, three-month average jobs growth now stands near 290,000. In the years before the pandemic, that would have been excellent news for an economy that wasn’t growing much. Today, it merely signals that the Fed’s anti-inflation fight hasn’t moved far or fast enough. 

Notably, the labor market participation rate fell slightly—a positive sign that higher rates might be having some effect—but growth in manufacturing jobs suggested otherwise.

The market is in the uncomfortable position of rooting against job and wage growth. But the Fed left the clear impression this week it wouldn’t ease the brakes on rate hikes until the job market softens. No single month’s jobs report is definitive, but the last three months of data combined show a very solid labor market likely at odds with the Fed’s plans.

Delving a bit deeper into October’s report by the numbers:

• Average hourly earnings rose 0.4%. That compared with the Wall Street consensus estimate of 0.3% and arguably signaled that a tight labor market and inflationary pressure continue to force employers to pay higher wages to hire and keep employees. Good news for workers but bad for possible wage-generated inflation.
• Labor force participation was little changed at 62.2%. This is a number that would likely be ticking higher if hiring managers were bringing back more people sidelined during the pandemic. Higher participation could also ease wage pressure.
• October’s unemployment rate rise to 3.7% looked somewhat helpful from the Fed’s perspective—and possibly the market’s—at first glance. This might explain why stock future were ahead just after the release. However this isn’t new territory. The rate has fluctuated between 3.5% and 3.7% since March. More déjà vu here. The Fed has projected that unemployment could rise above 4% next year as interest rate hikes pressure the economy, and so far that isn’t happening. Again, good news for workers, not so much for the Fed or investors.
• The number of discouraged workers, or as the Labor Department describes them, “people marginally attached to the labor force who believe no jobs are available for them,” declined by more than 100,000 in October. This could be a positive sign that at least some of these workers might be getting absorbed into the jobs market, which might be giving the market an early lift. 
• However, manufacturing added a solid 32,000 jobs. This likely wouldn’t be the case if the economy were slowing. It also contradicts some recent data showing manufacturing strength ticking lower. If you’re looking for progress in terms of things slowing down or the Fed’s hikes taking hold, you’d want to see this number drop. 

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All in all, this was a pretty good report, and not the kind of “labor market finally slowing” one that the market might welcome. The market probably should have sold off on this news, but it did a lot of that work yesterday.

Written By: TD Ameritrade