Apologies if you’ve heard this before, but the job market is slowing down. Not really.
Aside from long-standing calls for a recession to hit the United States, the expectation of reduced hiring is probably the most heard (and, so far, incorrect) economic call of at least the past year.
True to form, the Wall Street consensus is that the October nonfarm payrolls report, which the Labor Department will release on Friday at 8:30 a.m. ET, will show a sharp decline from September. Economists surveyed by Dow Jones expect growth of just 170,000, down from the surprisingly high 336,000 the previous month and well below the monthly average of 260,000 so far in 2023.
Don’t hold your breath waiting for such a big drop, said Amy Glaser, senior vice president at global staffing firm Adecco.
“This is going to be another amazing month. We are still seeing resilience in the market,” Glaser said. “We are still seeing a lot of positivity on the ground with our customers.”
Although long-standing trends such as aggressive job turnover and large wage increases now show signs of reversing, hiring remains strong as employers look for incentives such as flexible work schedules to attract new talent, he added.
“People can’t jump from job to job and get these huge, astronomical pay increases, which is good news for employers,” Glaser said. “On the other hand, we are seeing a return of the workforce… People coming off the bench will really have an impact in the coming months.”
Trends in labor force participation will be a metric worth monitoring closely when the report is released, as the participation rate is still half a percentage point below its pre-pandemic level. Here are some more:
Average Hourly Earnings
Salaries increased 4.2% year-on-year in September. That figure is expected to decline to 4% in October. The earnings outlook is an important component of inflation, and policymakers will watch it closely.
The Dow Jones estimate is for a monthly gain of 0.3%, after rising 0.2% in September. Federal Reserve officials have said they do not believe wages have been the key driver of inflation, although Chairman Jerome Powell said Wednesday that the labor market could emerge as a more important factor in the future.
Full time versus part time
“In recent months, companies are hiring relatively more part-time workers, indicating uncertainty in near-term business conditions,” said Jeffrey Roach, chief economist at LPL Financial.
In fact, a potentially important trend has been the hiring of part-time workers in recent months. Since June, their rolls have increased by 1.16 million, according to data from the Department of Labor. By contrast, full-time jobs have decreased by 692,000.
“Employers are creating more part-time opportunities that are bringing players in off the bench,” Glaser said. “There is still a bit of caution on the part of employers and they are choosing to open part-time jobs with this wait-and-see mentality.”
The unemployment rate
While the rise in the unemployment rate in recent months has generally gone unnoticed considering how low it is historically, the level is actually approaching a potential danger zone.
An economic premise known as Sahm’s rule states that recessions occur when the three-month average of the unemployment rate is half a percentage point above its 12-month low. The current rate of 3.8% is 0.4 percentage points above the recent low last seen in April.
“Most investors expect further deterioration in the labor market before we see a significant slowdown in inflation,” Roach said.
Nearly half a million American workers have gone on strike in recent months. While several of those high-profile stoppages have been resolved, some of the activity will appear in the October jobs report.
Specifically, the Bureau of Labor Statistics estimates that about 30,000 striking United Auto Workers workers will be subtracted from last month’s count, posing potential downside risks to the report.
Homebase, which compiles widely viewed high-frequency data on employment trends, said the overall labor market is falling.
The company’s database indicates that working employees decreased 2.4% in October, calculated on a seven-day average using January as a base. Hours worked, another important metric, fell 2%, Homebase said.