US Job Growth Stalls, Unemployment Ticks Up

An autumn chill has settled over the U.S. job market. The federal government’s jobs report issued Friday morning shows that In October, the nation saw a meager increase of 150,000 jobs, a figure that falls short of the 179,000 economists had forecast. This slowdown marks a significant deceleration from September’s initial 336,000 surge, later revised to 297,000. The Bureau of Labor Statistics has also recalculated August numbers, resulting in a 62,000 job decrease from previous reports.

Unemployment experienced a slight uptick to 3.9%, the highest since January 2022, signaling potential headwinds in an economy that has been largely resilient despite the Federal Reserve’s tightening policies. The job market, a fortress against inflationary pressures for months, now shows signs of wear, with private sector hiring at a modest 99,000 jobs — falling shy of the 113,000 projected.

Amid these numbers, the landscape is changing for the Fed as it wrestles with the dual mandate of controlling inflation without throttling growth. October’s figures may provide the Fed ample reason to pause on interest rate hikes in December, a scenario the market had previously pegged at a slim 20% likelihood.

The report spells concern for the robustness of the U.S. economy under Joe Biden’s watch. Alfredo Ortiz of Job Creators Network pointedly remarks that “cracks in the labor market continue to emerge,” citing a disproportionate increase in less productive government roles. Moreover, real wages dipped last month, effectively diminishing the average American’s purchasing power. This landscape, according to Ortiz, foreshadows the gathering economic storm clouds attributable to faltering leadership.

“Winter cooling is hitting the labor market,” comments Becky Frankiewicz from ManpowerGroup, encapsulating the prevailing sentiment. The labor force participation rate has declined, and the number of “underemployed” individuals is climbing — a stark departure from the previously tight labor market that defied earlier expectations for a slowdown.

Interestingly, despite aggressive monetary policy tightening, the jobs market had stumped recessionary forecasts for 2022. Michael Lebowitz from “Stimulus And Consumption Are Fueling Economic Resilience” explains this phenomenon as a byproduct of pandemic-era stimulus, which propelled consumption and, consequently, inflation. However, the potency of this fiscal stimulus is waning, signaling an impending reversal in both growth and inflationary pressures.

It’s important to note that economic data often lags, subject to retrospective adjustments, which means policymakers like the Fed are making decisions with a rearview mirror perspective. This lagging indicator phenomenon is pertinent when considering the National Bureau of Economic Research’s (NBER) historical approach to dating recessions, often a retrospective process informed by revised data.

In this vein, while current data suggests a slowdown, the trajectory is veering toward a recession. The yield curves’ inversion and the Leading Economic Index’s rate of change add credence to this outlook. Nonetheless, it is crucial to recognize that job and retail sales data often trail these signals.

Economists’ confident “no recession” calls are reminiscent of past pre-recession periods where robust employment figures and consumer spending painted a seemingly healthy economic portrait — right up until recessions struck. Such confidence may be misplaced, as highlighted by the observation that S&P 500 downturns historically precede the official recognition of a recession.

As for consumers, despite several economic constraints and a low saving rate, spending has remained robust into the third quarter. David Kelly from JPMorgan Asset Management points to a more than 4% increase in inflation-adjusted spending. How sustainable is this trajectory in the face of cooling job growth and rising unemployment?

As the leaves continue to fall and the economic temperature drops, Americans wait to see if this is a seasonal fluctuation or the harbinger of a prolonged economic winter.