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October job growth could be slowest in nearly 2 years, but unemployment remains extremely low

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Contractors work on the roof of a house under construction in the Stillpointe subdivision in Sumter, South Carolina, on Tuesday, July 6, 2021.

Micah Green | Bloomberg | Getty Images

This year’s hot pace of job creation may have slowed slightly in October, but unemployment is expected to remain very low as companies continue to deal with worker shortages.

Economists expect 205,000 jobs were added in October, and forecast the unemployment rate stayed at 3.5%, according to Dow Jones. That compares to job growth of 263,000 in September. The monthly employment report is released at 8:30 a.m. ET Friday.

Wage growth was expected to have cooled slightly, with average hour wages gaining 0.3% in the month, or 4.7% over a year ago, down from a 5.0% annual pace in September.

“The one thing that’s going to be strong is leisure and hospitality” jobs, said Diane Swonk, chief economist at KPMG. “Manufacturing could be light. We’re pivoting from goods into services…We’re bursting a bubble in the housing market, and that’s showing up.”

For the Federal Reserve, economists say the type of job growth that’s expected in October is not going to sway the central bank from its aggressive rate hiking path. Federal Reserve Chair Jerome Powell Wednesday said the Fed could reduce the size of its interest rate hikes, but it may need to raise rates to a higher-than-expected level to stop inflation.

Job squeeze seen, but not yet

Economists expect rate hikes will eventually slow the economy enough to crimp the job market.

“I don’t think they will begin to run the victory lap if we get a little bit weaker number here,” said Tom Simons, money market economist at Jefferies. He expects 170,000 jobs were added, which would be the slowest job growth since there was an actual contraction in payrolls in December 2020.

“They’re going to need several months where the policy has had an impact,” he said.

Swonk expects 160,000 new jobs were added to the economy in October. “The Fed is now targeting the labor market and is willing to go ahead and let unemployment go higher because even with the slowdown we’ve had, it has not been enough to derail inflation,” she said.

Recent data shows job openings surged in September despite the Fed’s efforts to cool the historically hot labor market, which has helped fuel the highest inflation since the early 1980s.

Employment openings for the month totaled 10.7 million, above the FactSet estimate for 9.9 million, according to data from the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey.

If the October payrolls are much stronger than expected, the Fed may not slow its pace of hiking when it next meets Dec. 13 and 14. “It’s definitely going to turn the heat back up for the prospect of a 75-basis- point hike in December,” said Simons. “I’d say it’s 50/50 as to where they go.”

Other data will also be a factor. There is another monthly employment report due Dec. 2 and two more releases of the consumer price index before that next Fed decision.

Swonk said the slowdown in housing could start to show up slightly in October’s jobs, but builders appear to be holding on to workers, for now, because of labor shortages. The next area to slow is likely to be multifamily buildings, she said. Weakness in housing could ripple into financial services, with the loss of mortgage broker positions or retail, if worried consumers spend less.

She noted that Halloween sales were strong. “The fear is we pulled a lot of goods spending we were going to do during the holiday up early,” she said. Swonk added that it also appears consumers are willing to spend on holiday travel, and that may mean less on gifts.

Swonk’s estimate is below the October consensus forecast. “We added 3.8 million jobs year-to-date, and it’s the second strongest annual number since 1984,” she said. The strongest was 2021, when more than 6 million jobs were added.

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