U.S. job growth slowed for the second month of September as employers added a still-strong 263,000 jobs, signaling that high inflation, rising interest rates and a slowing economy finally undermine the resilience of the labor market.
The jobless rate fell from 3.7% to 3.5%, returning to a 50-year low, the Labor Department said Friday. But that’s largely because 57,000 Americans left the labor force, which includes people working or looking for work, even as the payroll rose.
Economists polled by Bloomberg had estimated that 250,000 jobs had been created last month. Although the actual gain exceeded that forecast, it was the smallest advance since April 2021.
The labor market has been remarkably buoyant this year, posting average monthly gains of more than 400,000 despite challenges in the economy and the Federal Reserve’s campaign to blunt rising costs by making borrowing more expensive for consumers and businesses. Labor shortages have prompted many employers to keep hiring and avoid layoffs so as not to be caught off guard when activity rebounds.
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“Job growth has slowed significantly over the course of 2022 as economic growth has slowed, but remains well above its pre-pandemic pace,” says Gus Faucher, chief economist at PNC Financial Services Group.
What does the new jobs report mean?
The Fed is monitoring monthly changes in employment to gauge whether inflation is cooling enough for authorities to reverse the most aggressive rate hikes since the early 1980s. recession.
In a sign that worker shortages may persist, the share of adults working or looking for work fell slightly to 62.3% last month, leaving it well below the pre-pandemic level of 63.4 %. The labor force participation rate had generally risen and advanced strongly in August as workers returned to a hot labor market after caring for children or remaining inactive due to COVID-19 fears.
Is the job market still strong?
September’s drop suggests that finding workers could remain a challenge and push wage increases higher. This would likely further fuel inflation which is just below a 40-year high.
Last month, the average hourly wage rose 10 cents to $32.46, slightly lowering the annual increase from 5.2% in August to 5%, which remains a significant gain.
The further decline in turnout, along with falling unemployment and solid job creation, will likely help convince the Fed to approve another steep three-quarter-point interest rate hike in early November, economists say. .
The report “is still a green light for further Fed rate hikes and higher interest rates,” said Jason Schenker, head of Prestige Economics.
Why are stocks falling?
Shares fell after the report was released. The Dow Jones Industrial Average ended the day down 2.1%. The S&P 500 fell 2.8% and the Nasdaq 3.8%. Yields on US Treasuries jumped, with the 2-year note hitting nearly 4.3% and the 10-year note at 3.9%.
Markets fear the Fed will take Friday’s report as evidence that the economy has not yet slowed enough to bring inflation under control. This could pave the way for continued and aggressive interest rate hikes, potentially triggering a recession if done too harshly.
Which sector is currently recruiting?
Leisure and hospitality, which includes restaurants and bars, the sector hardest hit by the pandemic, led job gains with 83,000, although it remains 1.1 million below its level from before COVID. Health care added 60,000 and professional and business services 46,000.
Manufacturing added 22,000 jobs as US consumers continued to buy goods even as a strong dollar hurt exports. And construction added 19,000 people as companies still desperate to recruit workers due to long-running labor shortages despite a slowing housing market.
But the public sector shed 25,000 jobs, largely because fewer school staff returned to work last month than before the pandemic, reducing employment after seasonal adjustments.
Is a recession coming in 2023?
Many economists now believe the Fed’s rate hikes will tip the country into a recession next year and uncertainty is starting to weigh on hiring. Payroll gains slowed from over 500,000 in July to around 300,000 in August.
During this period, job postings – an indicator of future hiring – fell sharply, from a near-record low of 11.2 million to a still strong level of 10.1 million. With 1.7 vacancies for every unemployed worker, workers retain bargaining power. But that’s down from two openings per unemployed the previous month.
Initial jobless claims, a measure of layoffs, hit their highest level since late August last week, but remain historically low. Announced job cuts jumped 46% last month and employers unveiled plans to hire 380,000 workers, the lowest September total since 2011, according to Challenger Gray & Christmas, an outplacement firm.
Also reduced employment last month: Employers recruited 1.3 million teenagers and young adults for the summer season and most returned to school, Goldman Sachs wrote in a research note.
Is there still a labor shortage in 2022?
At the same time, labor shortages still plague most industries and many companies have opted not to lay off employees even though the outlook is darkening.
“Companies still don’t want to lose the talent – especially talent with technical skills – that they’ve worked so hard to earn,” says Nicola Hancock, managing director of the Americas region for AMS, an acquisition company of talents and advice. “Even though the US economy is shrinking, we are still experiencing the most painful skills shortage in our history.”
The result: an unusual split in a cooling labor market, with some employers becoming more cautious even as others continue to hire or at least avoid job cuts.
“Hospitality and airlines, for example, remain in catch-up mode after going through the pandemic deeply,” says Hancock.
Tyler Sebastian, a cook and kitchen manager at a drug and alcohol rehabilitation center in Garberville, Calif., was notified this week that the facility was closing.
The 32-year-old isn’t worried about finding a new position, although he fears he may have to take a pay cut after securing steady raises at the center during his four-year tenure. “There are jobs there,” he says. “I’m sure I’ll find something.”
What are the labor market prospects?
Many economists expect the labor market to run out of steam faster now that the country has recouped the 22 million jobs lost in the health crisis and inflation and high interest rates are starting to dampen. consumer and business spending. Monthly earnings will likely fall to around 100,000 by the end of the year, according to Moody’s Analytics.
“Job growth is expected to slow faster as employers cut hiring amid a slowing economy and falling corporate profits,” economist Nancy Vanden Houten wrote in a note to clients.
Contributor: Elisabeth Buchwald