The economy added just 150,000 jobs in October, reflecting a slowdown in the labor market as the Federal Reserve keeps interest rates high to try to bring down inflation.
The headline job growth number in Friday’s employment report from the Bureau of Labor Statistics was less than most economists had projected. It was also well below September’s gain of 297,000 jobs, after revisions. August’s job creation was also revised down, meaning that there were 101,000 fewer jobs added in those two months than previously thought.
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The unemployment rate increased by a tenth of a percentage point to 3.9%.
The slowdown will complicate some of the messaging coming out of the White House, which has been working to credit President Joe Biden for the strong job creation over the past year.
“With less heat seen in the job market, this report should go over well at the Federal Reserve, which has been keeping the threat of a rate increase alive even as it has opted not to pull the interest rate raising lever at the past two meetings,” Mark Hamrick, Bankrate’s senior economic analyst, said.
The employment report’s household survey found that the number of unemployed persons was little changed at 6.5 million.
The labor force participation rate ticked down by a tenth of a percentage point to 62.7% in October, and the employment-population ratio fell two-tenths of a percentage point to 60.2%.
One factor at play in the October employment report was the strike by the United Auto Workers. The UAW strike began in September, and it eventually involved more than 45,000 workers from the “Big Three” automakers at several plants in nearly two dozen states.
Goldman Sachs researchers estimate that the strikes took a 30,000-person bite out of the October jobs report. UAW has since reached tentative agreements with Ford, Stellantis, and General Motors.
The Fed has carried out a historic quest to restrict monetary policy in response to the inflation that has torn through households over the past few years. Annual inflation, as measured by the consumer price index, fell from more than 9% in June 2022 to just 3.7% in September.
Nevertheless, the central bank is targeting 2% long-run inflation, so there is a chance that the Fed will have to keep its restrictive monetary policy in place for some time. In the gauge favored by the Fed, the consumption expenditures index, prices rose at a 3.4% annual rate in September, according to a report released last week.
The Fed’s target range is now 5.25% to 5.50%, which is the highest level in years. Higher interest rates are meant to have the effect of slowing borrowing and investment, dampening overall commerce. Many economists fear that the rate-hike cycle will end in a recession.
The higher federal funds rate has other deleterious effects for consumers as well.
High interest rates have made it more challenging to take on and pay off credit card debt and made auto loans more expensive. It has also eaten into housing affordability, causing mortgage rates to spike at a time when home prices are already way up (the median sales price of a home has increased a whopping 31% since just before the pandemic).
As of Wednesday, the average rate on a 30-year, fixed-rate mortgage was 7.51%, according to Mortgage News Daily, which tracks daily changes in rates. Last month, mortgage rates peaked at over 8% for the first time since the turn of the century.
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But in some good news for the economy, gross domestic product growth has remained robust despite the rate hikes.
The Bureau of Economic Analysis recently reported that the economy grew at a 4.9% seasonally adjusted annual rate in the third quarter of this year, up from 2.1% the quarter before — surprisingly strong growth given how high interest rates have risen.
