In October, labour conditions remained favourable as strong demand for workers was maintained and labour force participation fell. Despite specific areas of decline, aggregate labour data shows firms continue to face significant staffing issues. According to October’s Labor Department job report release, the economy added 261,000 jobs for the month, above the 200,000 consensus projection but falling short of the 315,000 notched in September.
Private sector employees’ average hourly wages increased by 0.4%, exceeding the predicted gain of 0.3%, which would have been the same as August. For the second consecutive month, the labour force participation rate, or the percentage of people who are either employed or looking for work, fell to 62.2, a 10-basis-point decrease from the previous month and 1.2 percentage points below the pre-pandemic level from February 2020.
Also Read: Buying foreign stocks is legal in India – Here are five simple ways to invest in the US stock market
Here is what José Torres, Senior Economist at Interactive Brokers thinks about the October job report and its impact on inflation and the equity market.
The data underscore that the tight labor market is contributing to increased wage pressure and sticky inflation in services while the weakness in labor force participation is also concerning. The weak labor force participation has prevented businesses from increasing productivity, which in combination with higher wages is squeezing margins.
Also Read: US CPI report this week is a significant economic indicator that could influence the Fed
From a longer-term perspective, this could create challenges for equity investors. While market valuations have declined year to date, earnings forecast revisions, have not been lowered sufficiently to reflect likely economic deceleration, inflation, wage pressures and the lack of productivity gains.
Despite the strong headline job data numbers, pockets of weakness emerged in the report. The unemployment rate rose from 3.5% in September to 3.7%, which was higher than the expected 3.6% rate. Rising unemployment was driven by an employment decline in the household employment survey.
But wait, didn’t we just say that we added around a quarter of a million jobs? Yes, and the discrepancy results from the Labor Department using two different surveys: the establishment survey, which is based on company payrolls, and the household survey, which is based on households answering survey questions.
The household survey reflects a loss of 328,000 jobs, the first loss since June and therefore pushes up the unemployment rate. The household survey, however, is more volatile than the establishment survey and should carry less significance when assessing the economy.
Overall, the economy continues to add jobs and that’s positive for economic growth and financial markets; however, cracks are surfacing. Several more large corporations announced hiring freezes and layoffs, adding to the long list.
On the other hand, releases from the Labor Department on Tuesday and Thursday regarding job openings and unemployment claims reflect a labor market with many job opportunities and a low level of layoffs.
Conditions remain strong overall, but not as strong as they were in the beginning of the year. The one problem, however, is that this report doesn’t solve the global economy’s biggest problem—Inflation.