Jobs rose by 336,000 in September, showing a resiliency in the labour market and exceeding economists’ expectations. But the last report from the Bureau of Labour Statistics said the unemployment rate unexpectedly ticked up to 3.8%.
And most of those robust job gains were spread out across several sectors, such as leisure and hospitality, government, health care and professional and business services. As people continue spending on trips and eating out, Americans surrounded by the leisure and hospitality hit hard in the pandemic came back with 96,000 jobs. Government employment increased by 73,000; health care addition 41,000 jobs.
The strong headline figure notwithstanding, some of the green shoots on the labour market were under pressure. More people looking for jobs meant the unemployment rate rose from 3.8 to 3.9%. But the labour force participation rate stood at 62.8 percent. Hourly earnings for the month were up 0.2 per cent, and 4.2 per in comparison to a year earlier, slightly less than expected.
The mixed signals in the report make it tough for the Federal Reserve to use downward pressure on inflation without tipping the economy into a recession. The strong job growth suggests the economy is still moving in a healthy direction but the uptick in unemployment and moderation in wage growth could signal one of Ben Bernanke’s cooling effects is kicking in from all his interest rate hikes.
Diane Swonk, chief economist at KPMG, said ‘the labour market is still quite strong, but it’s a tale of two cities.’ “But we’re seeing continued strength in hiring, as well as some early signs of softening.”
The report was published as the economy confronts the effects of a rise in interest rates. Borrowing costs for consumers and businesses recently hit 16-year highs above 4.8%, above that, only the 10-year Treasury yield has exceeded 4.8%. But some economists fear that could ultimately tip into a sharper slowdown in hiring and economic growth.
But some see the resilience of the labour market as a sign that a soft landing — lowering inflation without a recession — is still in play. Nick Bunker, economic research director at Indeed Hiring Lab, called the labour market ‘healthy’ continuing to expand at a healthy clip. All of this helps the Fed as it attempts to tamp down inflation.
Other recent data paints a mixed picture of the economy, with the September jobs report coming on the heels of that. Despite that, manufacturing activity continued to shrink for the 11th straight month in September, according to the Institute for Supply Management, which showed consumer spending remains strong. Higher mortgage rates have slowed down the housing market.
Inflation data due out soon will be under the microscope at the Federal Reserve as it ponders its next moves. Next week, policymakers will be watching a big piece of economic data: the Consumer Price Index for September will be released. But most economists expect the Fed to stand pat on interest rates at its meeting in November, though debate around whether more rate hikes will be needed to pull down inflation to the central bank’s 2 per cent target continues.
For now, the storm has lifted from the labour market, and employers are still adding jobs at a solid rate. The strength is however sapped by unemployment ticking higher and wage growth not quite so robust. It will take some time, the next few months, to tell if the U.S. is going to land softly or if there are more economic pains ahead.