Labour tends to be a 'lagging indicator' of the economy's general health, says analyst
The latest US jobs report came in slightly stronger than expected, with a gain of 261,000 jobs in October, according to the Bureau of Labor Statistics.
“The number of jobs added to the economy did slow from September’s total, but this was still a strong positive gain that kept the monthly average for 2022 at over 400,000 jobs added per month,” said Joel Kan, deputy chief economist of the Mortgage Bankers association.
The unemployment rate inched up two basis points to 3.7% in October, while the labor force participation rate increased slightly to 62.2% – marking the second time in three months that there has been an uptick in the number of unemployed workers.
“Wage growth, as measured by average hourly earnings, decelerated to a 4.73% year-over-year rate, compared to 4.98% in September. This was the slowest rate of growth since August 2021,” Kan noted. “The easing in wage growth might help reduce some inflationary pressure, but we expect the Federal Reserve to continue its current course of policy tightening until there is broader evidence of cooling inflation.”
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Most of the job gains occurred in the health care (+53,000), professional and technical services (+43,000), and manufacturing sectors (+32,000). Meanwhile, construction employment was essentially flat over the month, consistent with the slowdown in the home building sector.
“While job growth remains strong, labor tends to be a lagging indicator of the general health of the economy (i.e., before past recessions, it was common for the economy to continue to add jobs even as signs of a slowdown were present elsewhere),” said Nathaniel Drake, analytics associate at Fannie Mae’s Economic and Strategic Research Group. “Therefore, while we do expect job gains to slow through the end of the year, we forecast that the economy will not begin losing jobs on net until next year.
“While robust labor demand remains good news for workers, given both the abysmal productivity growth seen this year, as well as the ongoing imbalance with labor supply, wage growth continues to run above levels that are consistent with 2% inflation. We believe this is likely partially responsible for why the FOMC now believes the terminal federal funds rate will need to be higher than they had previously projected.”
Borrowing costs continued to become even more expensive as the Fed pumped up its benchmark interest rate by another 75 basis points during its meeting last week. The average 30-year mortgage rate hovers at 6.95% as of November 3.
