Job Growth Slows, Sowing a Mix of Concern and Calm

The labor market has been relentlessly hot since the U.S. economy began to recover from the shock of the pandemic. But there are signs of cooling as the holidays approach.

Employers added 150,000 jobs in October on a seasonally adjusted basis, the Labor Department reported on Friday, a number that fell short of economists’ forecasts.

Hiring figures for August and September were revised downward, subtracting more than 100,000 jobs from earlier reports. And the unemployment rate, based on a survey of households, rose to 3.9 percent from 3.8 percent in September.

But there were extenuating factors in the data. Some 96,000 people reported being out of work because of a strike or labor dispute, the most since 1997 — largely because of auto industry walkouts that have since ended.

Accounting for those quirks, job creation still looks healthy. The three-month average — a frequent reference point for economists — is 204,000, a robust pace by historical standards. And the economy has generated job gains for a remarkable 34 straight months.

“This is mildly concerning, but for now, these are still strong numbers,” Sonu Varghese, chief market strategist at Carson Group, an asset management firm, said of the October data. “I think this is still just normalization.”

Markets reacted positively to the news. The signs of recent cooling reinforced expectations that the Federal Reserve would hold off on further interest rate increases in its fight against stubborn inflation. Bond prices rose, and stocks delivered a fifth straight day of gains.

Because they worry that rapidly growing incomes can spur higher prices, Fed policymakers have been encouraged by recent decelerations in wage growth. The Labor Department report showed average hourly earnings up 0.2 percent in October from the previous month, slightly less than expected, and 4.1 percent higher than a year earlier.

Claudia Sahm, a Fed economist from 2007 to 2019 and the architect of a trusted recession indicator, said the October report did not suggest “a good direction” for the labor market. But she said it would take a longer-term rise in unemployment to signal an approaching recession.

The economy expanded at a 4.9 percent annualized rate from July through September, the Commerce Department reported last week. Throughout the year the economy has defied forecasts of a downturn, even as inflation lingered, driving down consumer sentiment and, to some extent, business confidence.

The economy has also experienced tremendous bifurcation in the past couple of years, with median household net worth surging while the poverty rate has ticked back up from its lows in 2021.

The Fed’s mammoth increase in interest rates — to more than 5 percent from near zero early last year — could be felt in new ways as winter approaches, with low-income borrowers and indebted businesses looking especially vulnerable. Car loans are prohibitively expensive for many. The housing market, crimped by a lack of supply and mortgage rates approaching 8 percent, has nearly frozen in many regions and locked out scores of potential middle-class home buyers.

But for homeowners, who represent two-thirds of American households, the average rate on outstanding mortgage debt is still only 3.6 percent because millions bought or refinanced homes at the low-cost terms through early 2022.

Corporate America took advantage of the days of low borrowing costs, too, and funded companies with easy credit. But interest rates are likely to remain elevated for much of next year, just as a large crop of businesses need fresh financing. Small businesses are already trudging through the muck of higher debt burdens, now paying approximately 10 percent interest on short-term loans, according to the National Federal of Independent Businesses.

“Small businesses have faced challenges getting access to capital and managing cash flows in this environment,” John Gibson, the chief executive of Paychex, a large payroll services company, said during a quarterly earning call with shareholders.

Yet Mr. Gibson added that “small businesses continue to add workers at sustained, but modest rates,” and that he and his firm “don’t see any material change to the macro environment.”

Many market analysts are telling clients that unless a major shock occurs, the economy could keep chugging along, albeit at a more sluggish rate. Layoffs, a constant worry, are well below historical averages. And measures of labor force productivity have made impressive gains as well in recent months.

“A rock-solid American jobs market rolls on albeit at a moderating pace,” said Joe Brusuelas, chief economist for the accounting firm RSM, pushing back against the protruding sense of gloom of some commentary. “Income gains continue to outpace inflation, which bodes well for consumption heading into the traditional holiday spending season.”

Last fall, mainstream surveys found that a vast majority of experts had a high level of confidence that recession was ahead. This fall, forecasts for the coming year are more mixed.

In a CNBC survey of economists, Wall Street strategists and market analysts, 49 percent said that they still expected a recession in the next 12 months, while 42 percent predicted a “soft landing,” in which inflation continues to abate without a broad contraction.

Throughout this year, there has been tension between dour consumer sentiment and impressive resilience in general economic data. Inflation has come down significantly from its peak in June 2022 and commercial activity has remained bright.

But many Americans are still wrestling with a more structural affordability crisis — in housing, health care, child care and more — that was festering well before this bout of inflation. The cumulative uptick in consumer prices in recent years has often added to that struggle. According to a report by Bank of America, the average child care payment for U.S. households has risen over 30 percent since 2019.

A fresher set of concerns are occupying the minds of households, markets and economists, too.

The suspension of mandatory federal student loan repayments, a pandemic relief measure, ended in October and is expected to cut into the budgets of millions of people. A government shutdown looms if Congress fails to agree on funding beyond Nov. 17. That could affect markets and employment if it drags on.

On the geopolitical front, “the Middle East remains a powder keg,” said David Kelly, chief global strategist at JP Morgan Asset Management, noting the “risk that Iran or the United States could get drawn more directly into the conflict with very serious consequences over and above a potential disruption to oil supplies.”

Besides any humanitarian impact, such a dislocation in global oil markets could have serious implications for U.S. energy prices, and push inflation up again. But the impact has been limited so far, with gasoline prices actually falling in recent weeks.

Overall, the $27 trillion American economy will be hard to pull down into recession, even with downward pressures building. U.S. families, despite their various struggles, are in a healthier financial position than they were in 2019 across all cohorts.

According to the Fed, households in the bottom quarter had their inflation-adjusted net worth jump to $3,500 in 2022 from $400 in 2019 — circumstances that may continue to improve in the coming year if the job market stays intact.

Tenisha Hodges of Detroit is among those feeling better of late. Ms. Hodges, 45, worked as a hotel manager until 2020 when lockdowns prompted her to seek other work. She landed a job at Chrysler making roughly $16 an hour in pretax income. But she was classified as a temporary worker, even though she often put in six days a week; so her benefits were limited and she says she had to pick up other work to get by.

“I still had to work Amazon Flex, doing deliveries maybe two or three days out of the week,” she said.

Under a tentative contract agreement negotiated by the United Automobile Workers, temporary employees like Ms. Hodges will be allowed to gain permanent status after 90 days, and can rise to the top of the wage scale in just three years.

For Ms. Hodges, that could mean a jump to over $40 an hour in pay.

“It’s, like, life changing,” she said. “And I like it because now it puts me in a position where I can afford to drive a vehicle for the company I work for. That’s a very proud thing for me.”