The labour market added fewer jobs than expected last month
The US labor market grew less than expected in October, adding 150,000 jobs as the unemployment rate increased to 3.9%.
New Labor Department jobs figures showed growth that was below economist forecasts and lower than the previous month, suggesting that the Federal Reserve’s aggressive series of interest rate hikes to date is continuing to slow the economy.
Job gains in August and September were also revised downward by 101,000, indicating that the labor market did not perform as well in those months as initially thought.
The Fed opted to leave rates unchanged this week amid signs of an economic cooldown – and today’s news saw odds of a December rate hike plummet further.
That jump in the unemployment rate means it now sits at its highest level since January 2022, and slightly higher than economists’ expectations of 3.8% for the month. Analysts had anticipated net job gains of 180,000 in October, according to Refinitiv data.
Last month’s unemployment uptick was spurred mainly by the loss of 35,000 jobs in the manufacturing sector, principally due to strike activity, while the entertainment industry also continued to cull jobs amid ongoing strikes.
🧵 In October, the economy added 150,000 jobs, including gains in health care, government, social assistance and construction. https://t.co/YhLEuaacSN #JobsReport pic.twitter.com/ulYlE0ImUC
— U.S. Department of Labor (@USDOL) November 3, 2023
Experts react to latest figures
Joel Kan, vice president and deputy chief economist at the Mortgage Bankers Association (MBA), said the latest jobs figures reflected a slowing but resilient labor market.
“The job market continued to fare reasonably well in October but showed signs of weakening,” he said. “There was a slowing in the pace of job growth, hiring is occurring across fewer industries, and previous months’ numbers were revised lower.”
Inflation remains the Fed’s core focus as it weighs up whether to hike, cut, or hold rates in the coming months, Kan said, with MBA expecting the fed funds rate to remain at its current level until 2024, “when their next move is likely to be a cut.”
Fannie Mae chief economist Doug Duncan said the labor market remained in “healthy territory” despite clearly beginning to moderate, and emphasized that the manufacturing sector was likely to post a rebound in future employment reports when strike activity eases.
Still, he pointed to a rising number of workers who have a part-time job but would prefer full-time employment as an indication of a clear slowdown, with that figure spiking by more than 200,000 last month.
National Association of Realtors (NAR) chief economist Lawrence Yun also said the slowing job market strengthened the case for the Fed to pivot towards eventually introducing rate cuts at some point next year.
“The latest monthly job gains of 150,000 in October are one of the weakest in the past three years,” he said. “Wage gains… slowed to 4.1% compared to nearly 6% last year, which will lower inflationary pressures. The bond market is reacting as if the Fed will be cutting rates in 2024.”
With the key benchmark 10-year Treasury yield slipping below its recent high of 5%, Yun highlighted the fact that mortgage rates will now likely tick downwards, with the 30-year fixed rate likely to drop to around 6% by spring of 2024.
Outlook for housing
Construction hiring rose for the seventh month in a row, with the sector having added 148,000 jobs to date in 2023. Kan said still-low pre-owned housing inventory had pushed prospective buyers to new homes, “increasing the need for workers, while owners staying in their current homes continue to invest in home improvement projects and repairs.”
The addition of almost 14,000 jobs in residential construction in October, Duncan said, indicated “another robust month of employment growth, further helping to alleviate supply constraints present in this sector.”
The likelihood of a fall in mortgage rates, according to Yun, pointed to a possible upswing for the national housing market.
“If the spread between Treasury and mortgage were to move from the current abnormal high to just the historical average, the mortgage rates today would already be in the 6.2% to 6.7% range,” he said. “Be ready for more home buyers and more home sellers.”
