U.S. employers brushed off some of the economic fear in October to produce another strong month of hiring, despite current restrictive conditions and decades-high inflation.
The U.S. economy added 261,000 in October, 51,000 more than analysts expected but down from the 315,000 gained in September, the U.S. Bureau of Labor Statistics reported Friday.
“Monthly job growth has averaged 407,000 thus far in 2022, compared with 562,000 per month in 2021,” the Labor Department said. The most significant job gains were reported in health care (+53K), professional and technical services (+43K), and manufacturing (+32K).
Despite stronger-than-expected job growth for the month, the unemployment rate rose to 3.7% in October, up from 3.5% in the previous month.
The labor force participation rate also slid during the month, falling by 0.1% to 62.2%, according to the report. Average hourly earnings for private employees rose by 0.12 cents, or 0.4%, to $32.58.
With the Consumer Price Index (CPI) reading for September indicating an 8.2% increase, the 4.7% year-over-year uptick in average hourly earnings is not enough wage growth to counter the rapidly rising price of food, energy, medical, and transportation.
October’s CPI report will be released on November 14.
On Wednesday, the Federal Reserve raised its benchmark federal funds rate between 3.75% and 4.00% and increased interest rates by 0.75% for the fourth consecutive time this year.
Since the start of 2022, the Fed has raised interest rates five times: +0.25% in March, +0.50% in May, and +0.75% in June, July, September, and November.
“Consumers have been hit by a one-two punch over the past year,” said Bill Dendy, president of Alicorn Investment Management.
The first punch to consumers came from inflation. Dendy explained to The Dallas Express, “Inflation has continued to eat away at consumer spending, and money simply doesn’t go as it used to.”
The second, he said, came from the increased interest rates, noting that “Today, consumers are paying more for the debt they carry than at any time in the past four decades, ultimately causing people to spend less and to step down their standard of living.”
“Imagine slamming the brakes in your car when you are going fast. If you go too fast, it can destroy your vehicle. That is what Powell is trying to avoid,” Dendy explained. “He is trying to slow the economy without otherwise derailing it.”
Following Wednesday’s FOMC meeting, Powell indicated that monetary policymakers would be data-dependent when determining whether to reverse course on more rate hikes. However, Powell told reporters that it was far too premature to consider slowing or lowering rates.
Friday’s labor market data was not good news for consumers and could spur Powell to consider another aggressive 75-basis point increase in December versus the 0.50% percentage point hike projected by the Fed.
“The labor market is creating more demand for goods when, at the same time, the Fed is using its monetary policy to destroy demand. When Powell said painful, he meant higher unemployment,” Dendy suggested to The Dallas Express.
To conclude, Dendy recommends consumers revisit their portfolios.
“Consumers tend to run up debt during the holiday. Come next year, if they are not careful, they will pay more on that debt,” he told The Dallas Express. “This would be a great time for all consumers to revisit their budgets and to make sure they are getting maximum enjoyment for every dollar spent.”
RSM U.S. Chief Economist Joseph Brusuelas warned against any expectations that the Fed would change course in the near future, tweeting, “Any notion that the direction of monetary policy or the rate environment is going to change in the near term needs to be put to rest as the Fed will likely have to wait until late 2023 or early 2024 before considering any meaningful alteration in the policy path.”
The final FOMC meeting for 2022 is set for December 13-14, with another rate hike expected to occur. The next jobs report (Employment Situation) for November will be released on Friday, December 2, 2022, at 8:30 a.m.