The US job market is cooling. Here’s what that means for workers.
From layoffs to hiring freezes, there are signs that the job market in the U.S. is slowing. Here’s what workers should know.
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- The unemployment rate rose from 3.5% to 3.7%, the Labor Department said Friday.
- Economists had estimated that 190,000 jobs were added last month.
- Employers added 261,000 jobs despite high inflation, rising interest rates and growing recession fears.
Hiring stayed strong in October as employers added 261,000 jobs despite high inflation, rising interest rates and growing recession fears.
The unemployment rate rose from 3.5% to 3.7%, the Labor Department said Friday.
Economists had estimated that 190,000 jobs were added last month. The actual gain was the smallest since December 2020.
Yet in another sign of a vibrant labor market, job gains for August and September were revised up by a net 29,000, with September’s advance now 315,000, up from 263,000.
In recent months, job growth has downshifted from a robust average monthly pace of more than 400,000 for most of this year to about 290,000 the past three months but stayed resilient. Persistent worker shortages have led companies to avoid layoffs on fears they won’t be able to fill openings when the economy bounces back.
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Initial jobless claims, a gauge of layoffs, totaled a historically low 217,000 last week.
Health care led October’s job gains with 53,000. Professional and business services added 39,000; leisure and hospitality, 35,000, with hotels accounting for the bulk of the new positions; and manufacturing, 32,000.
Federal, state and local governments added 28,000 jobs.
“The economy seems to be on an even keel in this jobs report,” says Jane Oates, president of WorkingNation, a nonprofit that raises awareness about the challenges facing U.S. workers and former head of the Labor Department’s employment and training division.
Stocks react to jobs report
Stocks are moving higher after the better-than-expected jobs report. The Dow Jones Industrial Average was up 1.4% as of 11:14 a.m. ET. The S&P 500 was up 1.3% and the Nasdaq was up 1%.
This comes on the heels of Wednesday’s heightened volatility resulting from the Fed’s decision to hike interest rates by an additional 75 basis points. Meanwhile, the Dow experienced its best October on record with its 14% gain. That was also its best month since 1976.
What is the labor force participation rate?
In a hint that worker shortages could persist, the share of adults working or job-hunting edged down to 62.2%, leaving it well below the pre-pandemic level of 63.4%. The labor force participation rate generally had been rising since 2020 as workers returned to a hot labor market after caring for children or staying idle because of COVID-19 fears.
But that share has roughly held steady this year, signaling that most Americans intent on coming back to the workforce have done so. That could maintain upward pressure on wages as employers jostle for a more limited pool of workers.
Last month, average hourly wages rose 12 cents to $32.58, lowering the annual increase from 5% in August to a still healthy 4.7%.
The prospect of continuing labor shortages and elevated wage growth will likely mean more hefty interest rate hikes by a Federal Reserve determined to tame inflation stuck just below a 40-year high at 8.2%, economists say.
“This report is a green light for more Fed rate hikes and higher interest rates,” says Jason Schenker, president of Prestige Economics.
Are we in a recession right now?
The Fed’s moves increasingly are expected to discourage borrowing and economic activity, and top economists are now forecasting a recession in 2023. As a result, many businesses are dialing back hiring plans.
Identity, a 33-employee marketing and public relations firm based in Birmingham, Michigan, has added three employees this year and, with sales up 10%, was set to bring on a couple more.
But company President Mark Winter is growing cautious.
“We haven’t seen a slowdown in business demand but we know it’s coming,” Winter says.
So instead of expanding his full-time workforce, Winter is relying more heavily on freelancers for web development, writing, media relations and social media projects “to make sure we have more flexibility.”
Workers are also getting nervous about a looming recession. Job candidates on LinkedIn, on average, are sending out 18% more applications than they did a year ago in a sign that it’s becoming tougher to land a position, according to the professional networking platform. Also, Linkedin posts mentioning “layoff” or retrenchment are up 17.9% compared to last year.
Is there still a labor shortage?
At the same time, the labor shortages have prodded companies to add holiday workers early this season, a development that was likely to bolster October job growth, says Goldman Sachs economist Spencer Hill.
Job openings surged from 10.4 million to 10.7 million in September after easing off record levels in prior months. There are still nearly two vacancies for each unemployed adult in the U.S.
Yet there’s little doubt a slowdown is coming, economists say. Many companies that are replacing existing workers who leave will likely stop doing so in coming months, Morgan Stanley says. That “could lead to a faster collapse in job growth than normal,” the research firm says.
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Rather than backfilling some jobs, Winter says he’s turning to freelancers.
By early next year, job growth will likely come to a standstill, says economist Nancy Vanden Houten of Oxford Economics. Mark Zandi of Moody’s Analytics, expects such a stalling to occur in the second quarter.
“Our conversations with executives indicate that employment demand will deteriorate visibly in the coming months as companies face weaker sales domestically and abroad, continued cost pressures, and tighter financing conditions,” Ey-Parthenon wrote in a note to clients..
That would be worrisome for job seekers but welcome news for a Fed that’s looking for a pullback in employment and wage growth to determine whether inflation is cooling enough to pause its aggressive rate hike campaign. This week, the Fed approved its fourth straight three-quarters point rate increase.
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President Joe Biden celebrated the jobs report on Friday saying that “as long as I’m president, I’m not going to accept an argument that the problem is that too many Americans are finding good jobs.”
“Inflation is our top economic challenge,” he said. “We’re going to do what it takes to bring inflation down.”
Twitter is expected to announce massive layoffs today, according to several reports. This comes after Elon Musk took over Twitter and become its CEO. Around 3,750 workers are expected to be impacted by layoffs, half of its current workforce, according to The Verge.
Both Amazon and Apple announced hiring pauses yesterday. Amazon’s hiring pause is for all corporate roles while Apple’s is only for jobs outside of research and development.
Apple and Amazon stock were both up around 10:15 a.m. ET.
Even though the labor market is relatively strong right now, there are some cracks. Tech companies in particular are experiencing challenges. On Thursday, Lyft and payment processing company, Stripe, announced plans to cut 13% and 14% of their workforces, respectively, CNBC reported.
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One of the reasons the jobs report is so important is because the Federal Reserve factors it heavily into its decisions on interest rates. Since the jobs market is fairly strong despite the growing prospect of a recession, the Fed is able to raise interest rates in an effort to bring down inflation without worrying that it will lead to a spike in unemployment. But that could change as the central bank imposes more rate hikes.
The jobs report is one of the best indicators of the state of the labor market. Besides the headline unemployment rate, the report is a goldmine of data for economists, investors and policymakers. It indicates how many people stopped looking for jobs or stopped working, how much workers across a wide range of industries are earning and where hiring is occurring most among other information.
The next jobs report will come out on Friday, December 2. It will cover November employment trends.
The Cboe Volatility Index, or VIX, a market indicator of expected volatility over the next 30 days, is down slightly since the jobs report came out. It recently hit a near 6-week low indicating that investors are less uncertain about the market outlook.
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Elisabeth Buchwald is a personal finance and markets correspondent for USA TODAY. You can follow her on Twitter @BuchElisabeth and sign up for our Daily Money newsletter here
