US adds 261,000 jobs in continued sign of robust labor market

U.S. job growth rose at an unexpectedly brisk clip in October, defying expectations of a bigger slowdown as the historically tight labor market again showed resilience in the face of the Federal Reserve’s aggressive efforts to curb demand.

The economy added 261,000 positions last month, according to data released by the Bureau of Labor Statistics on Friday, more than consensus forecasts of 200,000. The figure was down from an upwardly revised 315,000 in September and 292,000 in August.

On average this year, the economy has added 407,000 jobs each month, compared to a monthly gain of 562,000 in 2021.

Despite these gains, unemployment ticked up to 3.7 percent, just above the pre-pandemic low.

The red-hot labor market has long been a source of discomfort for the Fed as the U.S. central bank tries to rein in economic growth to control decades-high inflation. Acute labor shortages have helped drive up wages as employers try to fill positions, helping to fuel inflation.

Fed Chairman Jay Powell described the labor market as “overheated” at a press conference on Wednesday after the central bank’s decision to raise the federal funds rate by 0.75 percentage points for the fourth time in a row. Citing recently released data that showed labor costs stabilizing and job openings unexpectedly climbing, he warned he doesn’t “see the case for real easing yet.”

In response to the latest jobs report, which came just days before US midterm elections that will decide control of Congress, President Joe Biden celebrated the gains.

“We will do whatever it takes to bring inflation down. But as long as I am president, I will not accept an argument that the problem is too many Americans finding good jobs,” he said.

Boosting the job count in October was an increase in employment in health care, professional and technical services, and manufacturing. The number of leisure and hotel jobs also increased by 35,000. Construction and retail trade were among the sectors that reported no monthly increase in positions.

The percentage of Americans who were either employed or looking for work — known as the labor force participation rate — again failed to improve in October, remaining at 62.2 percent. Average hourly earnings rose 0.4 percent, more than expected and an acceleration from September’s increase. The annual rate remained at 4.7 percent.

Powell warned on Wednesday that wages were “flattening” at a level “well above” what would be consistent with inflation returning to the Fed’s 2 percent target. Despite evidence that the economy is not cooling as quickly as expected, the chairman signaled this week that the Fed would consider reducing the pace at which it raises interest rates. The potential change could come either as soon as the December meeting or after that, given not only how far interest rates have risen this year but also the lagged impact of policy changes on the real economy.

Susan Collins, president of the Boston Fed, on Friday signaled her support for a slower pace of rate hikes. “Smaller increases will often be appropriate as we work to determine how much tightening is needed to reach a level of the funds rate that is restrictive enough,” she said.

Also on Friday, Thomas Barkin, president of the Richmond Fed, backed off a slower pace of growth.

The potential rate adjustment by the U.S. central bank comes after it pushed the Fed Funds rate to a range between 3.75 percent and 4 percent, a level that will more forcefully dampen activity.

Powell made it clear that a slower pace would not mean an easing of the fight against inflation, but he warned that the policy rate could reach higher levels than expected. After the latest jobs report, markets have now priced in the Fed Funds rate to peak above 5 percent next year.

A higher so-called terminal rate further reduces the odds that the Fed can avoid tipping the economy into recession, economists warn, with unemployment likely to rise above 5 percent.

Bob Michele, head of fixed income, currencies and commodities at JPMorgan Asset Management, said the Fed’s “sole priority” at the moment was to bring down inflation and that Powell had tried on Wednesday to “tell the market that they are not going to pivot or pause [because] they are still concerned about inflation”.

U.S. Treasuries initially came under further selling pressure on Friday, but reversed much of that move. The yield on the 10-year Treasury note — a benchmark used to set borrowing costs for consumers, businesses and other governments worldwide — rose 0.05 percentage points to 4.13 percent in afternoon trade. Interest rates rise when a bond’s price falls.

The S&P 500 closed 1.4 percent higher.

Thomas Simons, an economist at Jefferies, said wage growth and wages were not slowing fast enough. “This keeps another 75 basis point hike on the table for December [Fed] meeting, although obviously we have a lot more data between now and then, he said.