U.S. Added 261,000 Jobs in October, Signaling Economic Resilience

https://www.nytimes.com/2022/11/04/business/economy/october-jobs-report.html

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With less than a week until Election Day, a new economic report showed the strength of the job market despite policymakers’ efforts to constrain it in their fight against inflation.

The employment figures immediately made their way into both parties’ closing pitches to voters, with President Biden proclaiming that “our jobs recovery remains strong” even as Republicans said that the numbers were disappointing.

But the story is far more complex than any political statement would make it seem.

In normal times, the report from the Labor Department — which showed 261,000 jobs added in October, a low unemployment rate and rising wages — would be hailed as evidence of economic strength. Yet at a time when prices are climbing at their fastest rate in generations, robust gains last month might have been too much of a good thing. The Federal Reserve is worried that a hot job market is forcing employers to raise wages, which is leading to higher prices and more inflation.

The employment figures show that job growth is cooling, just very gradually, suggesting that a recession is not imminent. The gains were the weakest of the year and the lowest since December 2020.

“Today’s report shows that the job market is losing altitude,” said Daniel Zhao, an economist at the career site Glassdoor, “but isn’t in danger of slamming into the ground yet.”

The unemployment rate ticked up to 3.7 percent, from 3.5 percent in September. That rate is based on a different survey than the one that provides the hiring numbers, and the two reports sometimes diverge in ways that are hard for analysts to explain.

The Fed has been eager to see evidence that the labor market is softening and wage growth is moderating because that would help bring down inflation. Neither measure in Friday’s report offered central bankers much comfort.

Although wage growth has subsided slightly compared with the trend a year ago, pay is rising at a level that the Fed and outside economists have said is inconsistent with its long-term inflation goals. Between September and October, wages climbed 0.4 percent, more than the increase the month before and the fastest monthly increase since July.

The share of adults participating in the labor force also dipped, suggesting that new workers are not rushing to fill available jobs and ease the burden on employers who are struggling to hire people. That could prolong the pressure managers are under to raise wages to attract job candidates.

“What I see in this is the imprint of beginning weakness,” said Diane Swonk, the chief economist at KPMG. “But it’s not enough to derail the Fed.”

The big question for the Fed is whether the gradual cooling of the job market will be sufficient to meaningfully lower inflation, a sought-after path that policymakers refer to as a soft landing.

“This doesn’t get us where we want to go in any easy way,” Ms. Swonk said.

In the political arena, the two sides drew starkly different conclusions about the report. Republicans seized on the signs of a slowdown to suggest that the economy was headed into a recession, while Democrats focused on the strong job gains.

“The work force is shrinking, job growth is slowing and unemployment is rising,” Representative Kevin Brady of Texas, the top Republican on the House Ways and Means Committee, said in a statement. “These are all signs of a Biden-induced recession.”

House Speaker Nancy Pelosi was far more upbeat. “Under President Biden and the Democratic Congress, America continues to create jobs at a strong, steady, sustainable pace,” she said in a statement.

For the Fed, the report provided evidence that it has more work to do to get inflation under control, according to remarks on Friday by Thomas Barkin, the president of the Federal Reserve Bank of Richmond, and Neel Kashkari, the president of the Federal Reserve Bank of Minneapolis.

On Wednesday, the central bank raised interest rates by three-quarters of a percentage point and signaled that it planned to keep increasing them even as it suggested that it might slow the pace of increases to give the economy more time to adjust to higher rates. The central bank’s next rate decision is scheduled for Dec. 14, and most analysts are expecting an increase of half a percentage point.

Job growth in October was broad-based, with businesses across the economy hiring at a rapid clip. The health care sector added 53,000 workers. Even manufacturing, which has been bracing for a downturn, added 32,000 jobs, though other indicators suggest that rate may not continue for much longer, as consumer spending continues to shift away from goods and a strong dollar makes U.S. exports more expensive to buyers in other countries.

There have been other recent signs that the labor market remains tighter than policymakers would like. Job openings, after falling significantly in August, rose again in September to 10.7 million. That increase meant there were roughly 1.9 job openings for every unemployed worker. The number of people who quit their jobs — typically, a sign that workers are confident that they will find better ones — ticked down to 4.1 million but remained high. Layoffs have stayed low.

For many businesses, an unrelenting shortage of job applicants has made hiring incredibly difficult.

Alex Anderman, the vice president of operations at FOMO Eats, which owns six fast-casual restaurants in San Francisco and Las Vegas, said finding workers had been so challenging that he started walking into competitors’ restaurants last year and offering workers there a raise to come work for him.

A year later, he is still doing it.

“The power is still on the employee side,” said Mr. Anderman, who added that he had raised both pay and prices. He is still so short-staffed that when employees call in sick, his managers close stores early or call in temporary workers to fill in. Those workers, he said, are paid much higher wages.

To cope, his business has turned to automation, investing in equipment that cooks burgers with minimal human oversight. “It cooks it perfectly every time, and it shows up to work,” he said. “If people don’t want these jobs, which it seems like they don’t, then getting a robot to do it is beautiful.”

There are, of course, plenty of signs of a slowdown, particularly in sectors that are most sensitive to higher interest rates. Construction, which has been faltering amid skyrocketing mortgage rates, added only about 1,000 jobs in October.

Warehousing and storage businesses lost 20,000 jobs, possibly because of a retrenchment by Amazon after it rapidly expanded its logistics operation during the pandemic. Other large retailers have also taken big hits, often because they did not correctly anticipate how quickly people would shift their spending from goods to services.

The big job gains in leisure and hospitality, which have helped power the labor market in the pandemic era, have also noticeably tempered, though growth may be constrained by the availability of workers.

“When you dig into some of the details of the report, it doesn’t look quite as strong as first meets the eye,” said Sarah House, an economist at Wells Fargo.

The report also provided some mixed messages. The headline number, which comes from a survey of employers, showed a healthy increase in jobs. But an alternative measure of employment that is based on a canvass of households showed that employment fell by roughly 300,000. That decrease explains the rise in the unemployment.

As the Fed continues to increase interest rates, it may be only a matter of time before higher borrowing costs begin to hurt hiring plans.

Rotochopper, an industrial wood-grinding equipment manufacturer based in St. Martin, Minn., is still hiring welders and assemblers to help clear a “significant backlog” in orders, said Tosh Brinkerhoff, the company’s president and chief executive.

To attract and retain workers, the company, which has about 150 employees, bumped up its employee referral bonus to $2,000 from $500. It has hired a full-time recruiter and now spends thousands of dollars a month to advertise jobs and attract candidates. It has also recently brought on more part-time employees and less experienced workers including high school graduates.

“We’ve been more flexible,” Mr. Brinkerhoff said.

But the company is also bracing itself for a slowdown in the next three to six months. Although Rotochopper’s customers are still ordering equipment, Mr. Brinkerhoff said rising interest rates would most likely make it harder for some customers to finance their purchases, driving down demand.

“It will hit us,” he said. “We’re all expecting it. We just don’t know when exactly.”

Michael C. Bender, Ben Casselman, Lydia DePillis, Jeanna Smialek and Jim Tankersley contributed reporting.