Macro views
Macro views

October Jobs report: Estimates beaten, and Fed projections defied

Market response

November 4, 2022 | 2 min read

The October jobs report showed that the labor market is still strong and beating expectations. The economy added 261,000 jobs last month, exceeding forecasts of 193,000, and the prior month’s payroll figure was revised up from 263,000 to 315,000. The unemployment rate did rise slightly to 3.7%, up from 3.5% in September, but wages also improved at a faster-than- expected rate of 0.4% month-over-month. Overall, the labor market continues to be resilient to Federal Reserve (Fed) rate hikes despite the central bank’s best attempts to combat inflation. If October’s market rally was driven by expectations that the Fed may slow down, the latest comments from Fed Chair Jerome Powell and this jobs report may dash those hopes.

Report details

  • Despite the job growth seen in the establishment survey, the unemployment rate, which is based on a different survey of households, increased from 3.5% to 3.7%. This is welcome progress for the Fed, and approaches their year-end projection of 3.8%. However, this only represents a return to the unemployment level from two months ago. The Fed’s latest Summary of Economic Projections pegged the 2023 year-end unemployment level at 4.4%, quite far from today’s number, so there is more work for the Fed to do.
  • These job gains are consistent with other measures such as the JOLTS report, which showed that job openings jumped in September after plummeting the month before. There are still over 4.5 million more job openings than unemployed individuals across the economy, a fact that the Fed has cited on many occasions.
  • Jobs were added across many industries. Manufacturing payrolls increased 32,000, well above estimates of 12,000, and the leisure and hospitality sector added 35,000. This broad growth is a positive sign for workers that were hit hard during the pandemic but remain a challenge for the Fed’s inflation goals.
  • The labor force participation rate ticked down slightly from 62.3% to 62.2%. Average hourly earnings grew 4.7% on a year-over-year basis, a welcome deceleration from the prior month’s rate of 5.0%. Still, one of the main concerns for the Fed is risk of a “wage- price spiral” which would make inflation even more “entrenched” in labor costs and workers’ wage expectations.
  • The BLS noted that Hurricane Ian had “no discernable effect” on the employment data.

JOLTS job openings and the number of unemployed
Thousands, 2001-present

Line graph of job openings, by the thousands, and the number of unemployed, from 2001 - November, 2022.

Clearnomics, Bureau of Labor Statistics. Data as of November 4, 2022.

The October jobs numbers, while mixed in parts, ultimately show no clear signs that the Fed is yet succeeding at sufficiently weakening the labor market. This, along with the recent FOMC statement and comments by Fed Chair Powell, suggest that the Fed must continue further rate hikes well into 2023, including another hike of at least 50 basis points or more in December. For investors, this will likely reinforce the “good news is bad news” interpretation of the strong jobs data that has resulted in market swings throughout the year.

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Views and opinions expressed are accurate as of the date of this communication and are subject to change without notice. This material may contain ‘forward-looking’ information that is not purely historical in nature and may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

The information in the article should not be construed as investment advice or a recommendation for the purchase or sale of any security. The general information it contains does not take account of any investor’s investment objectives, particular needs, or financial situation.

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