US jobs growth rose at an unexpectedly rapid clip in October, defying expectations for a larger slowdown as the historically tight labour market again showed resilience in the face of the Federal Reserve’s aggressive efforts to curb demand.
The economy added 261,000 positions last month, according to data released by the Bureau of Labor Statistics on Friday, down from the upwardly revised 315,000 in September and 292,000 in August. In July, payrolls swelled by more than half a million.
Despite these gains, the unemployment rate ticked up to 3.7 per cent, just above its pre-pandemic low.
The red-hot labour market has long been a source of discomfort for the US central bank, which is actively trying to restrain economic growth in order to bring decades-high inflation under control. Acute labour shortages have helped to drive up wages, as employers seek to fulfil strong demand for workers, adding upward pressure on inflation.
Fed chair Jay Powell described the labour market as “overheated” on Wednesday, at a press conference following the central bank’s decision to lift the federal funds rate by 0.75 percentage points for the fourth time in a row. Citing recently released data that showed both labour costs steadying and job vacancies unexpectedly climbing, he warned he does not “see the case for real softening yet”.
The share of Americans either employed or seeking a job — known as the labour force participation rate — again failed to improve in October, steadying at 62.2 per cent. Average hourly earning rose 0.4 per cent, just above September’s increase but slowing the annual pace to 4.7 per cent.
Powell on Wednesday cautioned that wages were “flattening out” at a level that is “well above” what would be consistent with inflation returning to the Fed’s 2 per cent target. Despite evidence that the economy is not cooling as rapidly as expected, the chair this week signalled the Fed would soon reduce the pace at which it is raising interest rates.
The potential course adjustment from the US central bank comes after it pushed the fed funds rate from 3.75 per cent to 4 per cent, a level that will more forcefully curb activity.
Powell made clear that a slower pace will not mean an easing up of the fight against inflation, however, with the chair warning that the policy rate would reach higher levels than expected. Following the latest jobs report, markets have now priced in fed funds rate peaking above 5 per cent next year.
A higher so-called “terminal” rate further reduces the odds the Fed can avoid tipping the economy into a recession, economists warn, with the unemployment rate likely to rise above 5 per cent eventually.
Source: Economy - ft.com
