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Key Takeaways

  • The October jobs report showed an increase of 261,000 non-farm jobs.
  • Most major industries showed an increase in employment.
  • Wage growth continues to move higher with a 3.8% gain in October.

The jobs report is an essential indicator of the health of the economy. With the release of the October jobs reports, investors were disappointed that it was strong, given the implications of higher interest rates moving forward. However, this might not be the case when you look beyond the headlines. Here is what you need to know about the current state of employment in the U.S.

Recap of the jobs report

The October jobs report showed strong growth in manufacturing and healthcare, and no major industry showed a decline in jobs. A total of 261,000 non-farm jobs were added in October, bringing the three-month average to 289,000 jobs gained for each of those months.

Manufacturing added 367,000 new jobs since the start of 2022, with 32,000 jobs added in October alone. The blue-collar sector now has 137,000 more jobs than it had before the beginning of the pandemic. Most of the manufacturing industry’s job growth consists of manufacturing durable goods, including machinery, fabricated metal products, and electronics.

Economists were expecting a gain of 200,000 jobs, but the numbers far surpassed expectations. The Federal Reserve reacted by increasing interest rates by 0.75 basis points during their November meeting. The Fed is looking for signs of slowing wage growth, an indicator that inflation is decreasing. This, in turn, would suggest that steep interest rate hikes are no longer needed, which would help avoid major job losses resulting from a recession.

Much of the wage growth is attributed to the Bipartisan Infrastructure Law and the Inflation Reduction Act, which drives the demand for skilled laborers. The act seeks to drive the clean energy economy and improve U.S. infrastructure, both of which need employees capable of performing the tasks necessary for these jobs.

Where wages stand today

The wage report for October showed a 0.4% gain in average weekly wages paid by employers. Year-over-year, the average hourly earnings have increased by 4.7%. That’s a slow down from the 5% annual gain demonstrated in September, that measures earnings from September 2021 through September 2022.

Even though wage growth was strong throughout most of the year, it wasn’t enough to keep up with the average inflation rate of 8.2%. While an increase in wages is nice, workers don’t experience higher pay when prices rise faster than their incomes. It remains to be seen if the deceleration in wage growth will pressure retailers and wholesalers to lower their prices to sell more products.

Industry sectors growing and shrinking

Digging deeper in the report, we see that some industries are shedding jobs while others are gaining. Industries that are experiencing gains include:

  • Healthcare: 53,000
  • Professional and technical services: 43,000
  • Manufacturing: 32,000
  • Social assistance: 19,000
  • Leisure and hospitality: 35,000
  • Transportation and warehousing: 8,000

Industries that are showing losses include:

  • Warehousing and storage: 20,000
  • Specialty trade contractors: 4,000
  • Real estate, rental, and leasing: 8,700

Outlook Moving Forward

The pandemic recovery is driving most of the gains in employment, as is the ongoing retirement of the Baby Boomer generation. The Labor Department has noted that the labor market is showing signs of cooling, but employers are still hiring steadily. It’s likely that the job market will cool off slowly as opposed to a sudden crash.

Major technology companies are pausing hiring or trimming their workforce due to slower growth and losses in profitability. Here are some of the recent layoff announcements from technology companies that have already conducted layoffs that aren’t included in the most recent jobs report:

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  • Shopify: 1,000
  • Stripe: 1,100
  • Twitter: 3,700
  • Meta: 11,000
  • Lyft: 700
  • Coinbase: 1,100
  • Netflix: 450
  • Robinhood: 31% of staff
  • Microsoft: 1,000
  • Tesla: 10% of salaried employees

Additionally, Apple has decided to freeze new hiring altogether. The issue here is these people make a living based on their specialized skill set, so finding another job might be difficult with so many other tech companies laying off workers or pausing hiring. Additionally, these jobs tend to be higher paying jobs. Laid-off workers might be reluctant to take on lower-paying jobs and instead be more patient with finding work.

Since high-growth companies, like those in the technology sector, are the first to shed jobs when a recession is on the horizon, it is still too early to know how things will play out.

Travel and leisure is the other sector that tends to be at the forefront of a weak economy. People stop spending money on travel, dining out, and other discretionary spending categories. Surprisingly, the jobs reports noted that this industry saw significant gains.

However, there are cracks in the retail trade industry. Furniture and electronics stores saw a decline in employment of 6,900. Food and beverage and department stores saw a decline of 7,400 jobs. It will be important to look at these numbers in the coming months to see how these industries are holding up to continued high inflation and higher interest rates.

Labor force participation fell to 62.5% in October. Compare this to February 2020, before the pandemic began. The participation rate is 1.2% lower today, meaning that the workforce is relatively close to what it was before the mass layoffs and supply chain issues experienced during this time.

The implications of this job report will be just one of the data points the Federal Reserve will use when it meets in December to determine whether to raise or maintain interest rates at their current level. The Fed has stated it needs to see a slowdown in the labor market, but has not defined what a slowdown looks like. Is it a decline in new employment numbers? Does the unemployment rate need to rise to 8%?

If the Fed sees a significant slowdown in other areas of the economy, it might be comfortable pausing an increase in rates even if wage growth and jobs are growing.

Bottom Line

The increase in jobs was a surprise compared to analyst expectations. With more jobs being added, it gives the Federal Reserve reason to continue increasing interest rates. However, a deeper dive into the report shows that some industries are weakening. Also, the recent announcements from major tech companies regarding layoffs will be on the next jobs report, which could show a slowdown in employment.

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