U.S. Jobs: Dip In Employment Growth May Soothe Fed's Troubled Bow

It’s been coming for a while now: The job market has started to retreat, and has now created fewer than 270,000 jobs in consecutive months. That’s well below this year’s overall average monthly job creation rate of nearly 407,000 (and likewise, the trailing 12-month monthly average of nearly 440,000, and the 2021 rate of 562,000).

It doesn’t take a rocket scientist to look at the graph of monthly change and see a downward trend line starting in October last year, and carrying forth steadily to the present day. There were two upward outliers in Feb 2022 (714,000) and again in July (537,000):

It’s too early to be sure, but one could argue that nearly identical results for September and October (both still preliminary) of just over 260,000 new jobs might show that a new normal is making itself known. We shall see.

What About Unemployment Rates?

Good question. Over the past 12 months unemployment rates trended downward from December 2021 through July 2022 (see next graph). Rates declined as the job market grew its way back to near-parity with pre-pandemic levels:

This includes nearly all major sectors that the U.S. Bureau of Labor Statistics tracks by September 2022, excepting  leisure and hospitality (still down by more than 1 million jobs), plus one or two others. For the last four months, though, unemployment rates have yo-yo-ed from 3.5 percent (July and September) to 3.7 percent (August and October).

NPR, at least, is inclined to see this latest unemployment rate jump as a sign that the Fed might start believing their rate hikes are working, and reconsider their plans to add another three-quarter point increment at the conclusion of their next meeting in mid-December (Dec. 13-14).

Given that the latest inflation rate — the 8.2 percent clocked in September — is still above 8 percent, this may be wishful thinking. What I see is that unemployment is still below the longtime 4 percent benchmark for what labor economists call “full employment.” Indeed, rates could indeed be heading more toward that benchmark now.

The latest U.S. Bureau of Labor Statistics report, however, puts things this way: "The unemployment rate has been in a narrow range of 3.5 to 3.7 percent since last March." Again: We’ll see what the Fed thinks in five weeks or so.

Digging into the October Jobs Numbers

The jobs creation action for October came mostly from “the usual suspects” and mostly continues patterns clearly evident from recent preceding months. Here’s how those October numbers were reported in more detail:

Healthcare gained 53,000 jobs and is now exceeding February 2020 levels. Of that number, 31,000 went to ambulatory health care services, and 11,000 each to hospitals and to nursing and residential care facilities. As an interesting side note: Whereas this sector’s monthly average growth for 2021 was 9,000 jobs so far in 2022 that average has zoomed to 47,000 (up more than 500 percent).

Professional and technical services increased by 43,000 jobs, continuing its longstanding pattern of monthly growth. 7,000 jobs came to management and technical consulting services, with another 5,000 to scientific research and development services. Monthly growth in this sector for 2022 has been 41,000 jobs versus 53,000 jobs for 2021.

Manufacturing also continues a steady growth pattern, with 32,000 jobs added. Most of that — 23,000 jobs — went to durable goods industries. In this sector, the 2022 monthly average of 37,000 jobs exceeds the 2022 number by 7,000.

Social assistance gained 19,000 jobs. It remains only 9,000 below pre-pandemic levels. Of October’s gains, 10,000 went to individual and family services.

Wholesale trade grew by 15,000 jobs. For 2022 so far, this sector has average monthly gains of 17,000, versus 13,000 for 2021.

Leisure and hospitality added 35,000 jobs, of which 20,000 went to accommodation. This sector has been struggling to grow, as its monthly average figure of 78,000 jobs for 2022 shows vis-à-vis 196,000 for 2021. It it’s the only sector that remains noticeably lower in numbers versus February 2020 levels (down 1.1 million jobs, or 6.5 percent).

Transportation and warehousing (+8,000) and financial activities (+3,000) showed only slight growth, with other sectors — namely, mining, construction, retail trade, information, other services and government mostly unchanged for the month.

This shows that while the overall numbers are slowing, job creation remains spread across about half (7) of the total sectors (14) that the U.S. BLS tracks. This speaks to overall growth, even if it is tapering off.

Wages also continue to grow, up by 12 cents per hour to $32.58 hourly for private nonfarm payrolls. Average hourly earnings are up by 4.7 percent for the previous 12-month interval, still well under the inflation rate.

Where To, From Here?

The trend seems to indicate continuing slowdowns in job creation, which is what most labor economists expect given that the economy has mostly reached parity with pre-pandemic levels. The real question is: Will growth continue to trend downward, or will it simply flatten out to a new normal?

The data suggests this is a possibility but there’s not enough of the new normal to see if it’s real, or a pause on a continuing downward track. Those competing hypotheses, along with continuing inflation rates, is what the Fed will be watching closely as it heads into its next meeting mid-December.

There may be cause for hope, as NPR suggests. Or their expressed intentions to keep raising rates as long as inflation persists at current levels may bring us a seventh rate hike to cap off the year. Only time will tell. Stay tuned!