U.S. job growth slowed in October as strikes by the United Auto Workers (UAW) union against Detroit’s “Big Three” car makers depressed manufacturing payrolls. The increase in annual wages was also the smallest in nearly 2-1/2 years, indicating a possible easing in labor market conditions. The unemployment rate rose to 3.9%, the highest level since January 2022, from 3.8% in September. The economy added 101,000 fewer jobs in August and September than previously estimated, suggesting a slowdown in labor market momentum.
The slowdown in employment gains in October was partly due to the UAW strike at Ford, General Motors, and Chrysler parent Stellantis factories, which subtracted 33,000 jobs. Manufacturing employment dropped by 35,000 in total. Despite the cumulative impact of rate hikes from the Federal Reserve, hiring remains strong, and payroll gains are still well above the level needed to keep up with population growth. The healthcare sector led the increase in hiring last month with 58,000 jobs added, mostly in ambulatory health care services. The construction industry also added 23,000 jobs.
The report suggests that the Federal Reserve is likely to keep interest rates unchanged in December and January. Average hourly earnings rose 0.2% in October, the smallest increase since June 2021, while wages increased by 4.1% year-on-year. Although wage pressure is easing due to a larger labor pool, the annual growth in average hourly earnings remains above the 3.5% target set by the Fed. The labor market is seen as a major force behind the economy’s resilience, with GDP recording strong growth in the third quarter.
Overall, while job growth slowed and wages increased at a slower pace, the labor market remains relatively strong. The strike-induced decline in manufacturing jobs and the overall softness in the report may keep the Federal Reserve from raising interest rates for the third consecutive meeting in December, indicating a “Fed-friendly” environment. The report also highlighted the impact of strikes and the challenges faced by the services-based U.S. economy in boosting productivity and wage growth. Despite the softer numbers, economists believe the economy is on a sustainable path of low inflation and solid potential growth.
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