Job Market Cools a Bit

The US economy generated 261,000 new jobs in October, which is significantly ahead of economists’ expectations. The Bureau of Labor Statistics (BLS) also upwardly revised jobs gains reported for September. Hiring was broadbased, from manufacturing to government to healthcare to professional services. The unemployment rate ticked up to 3.7% from 3.5%. Wage growth has slowed somewhat—to 4.7% from 5.6% last March—but is still considered very strong. My big takeaway is that the job market remains resilient, but all the numbers listed above are a bit weaker than they were several months ago. Fed rate hikes are just beginning to have a cooling effect on hiring. Despite the knee-jerk market reaction and headlines proclaiming that “good news is bad news,” I don’t think this report really changes anything with respect to Fed policy.

This jobs report suggests consumer spending will hold up, but also that the Fed must continue to raise rates. Remember, the Fed’s goal is to reduce inflation and we know that wage growth is probably the stickiest form of inflation. Employers don’t give out pay raises one year and yank them back the next. So the labor market and especially wage growth is important to watch going forward.

We’re hearing some companies talk about limited layoffs or hiring freezes. After doubling its headcount from pre-pandemic levels, Amazon (AMZN) is finally getting around to “pausing” hiring in some areas “for the next few months.” Unofficial reports claim Apple (AAPL) has frozen all hiring activity for the time being. But for the most part, layoff announcements are confined to companies that are either unprofitable or otherwise chronically financially challenged. Lyft will cut 13% of its workforce, Stripe will cut 14%, and Twitter’s new owner Elon Musk has started mass layoffs. But among well-heeled companies we’re still hearing about difficulty finding qualified employees.