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U.S. Job Growth Slowing Gradually

David Krechevsky
Oct 07, 2022

Adds 263,000 jobs in September; unemployment rate dips to 3.5%

KEY TAKEAWAYS
  • Total nonfarm payroll employment increased by 263,000 in September, fewer than the 315,000 added in August.
  • Economy added jobs for the 21st straight month.
  • MBA predicts Fed will announce a 0.5% increase in federal funds rate in November.

The U.S. economy added jobs for the 21st month in a row in September, but the pace slowed for the second consecutive month.

The unemployment rate slipped back to 3.5%, where it was in July, after rising to 3.7% in August. 

According to the monthly report released today by the U.S. Bureau of Labor Statistics (BLS), total nonfarm payroll employment increased by 263,000 in September, slightly below analysts expectations and fewer than the 315,000 jobs added in August.

August’s increase was also well below July’s total of 537,000, which was revised upward for the second straight month. Job growth has averaged 422,000 per month this year.

The slowing pace of job gains is a sign that the Federal Reserve’s efforts to rein in rampant inflation may finally be having an effect on the economy.

“While the pace of growth slowed in September to 263,000, this is still faster than can be sustained in the U.S. economy over time,” said Mike Frantantoni, senior vice president and chief economist for the Mortgage Bankers Association (MBA). “And other data clearly signaling a slowing economy lead us to forecast a sharp drop in job growth over the coming months.”

Hannah Jones, economic data analyst for Realtor.com, agreed.

“Slowed employment gains reflect the ongoing monetary tightening efforts of the Fed, who raised the federal funds rate 75 basis points in September, further notching up the cost of borrowing,” she said. “The Fed continued to emphasize its goal of targeting still-high inflation, which was 8.3% in August, in an effort to return prices to a healthy level.”

At least one economist, however, isn’t so sure the report shows enough to satisfy the Fed.

“Overall, the September jobs report reflects a still-strong labor market that is gradually cooling,” said Odeta Kushi, deputy chief economist for First American Financial Corp. “The Federal Reserve really wants to see the labor supply increase, and the September jobs report did not deliver.”

The labor force participation rate was little changed at 62.3% in September, below the pre-pandemic level of 63.4%.

The number of job openings fell to 10.1 million in August, below the 11 million mark that had held in recent months, while the number of unemployed people also edged downward, totaling 5.8 million in September after rising to 6 million in August.

“A labor market characterized by high demand, but limited supply means upward pressure on wages, as employers compete to attract and retain employees, in turn putting upward pressure on inflation,” Kushi said. “The Fed is watching wage growth for signs of a cooling economy as it works to tame high inflation.”

The average hourly wage rose slightly to $32.46, a 5% increase over the last year, lagging August’s growth and still lagging headline inflation.

“However, one month does not make a trend,” Kushi said. “September’s jobs report follows a strong month for labor force participation in August as more workers returned to the labor force.”

Jones did note a “significant shift” in the sentiment of job seekers, “as the number of discouraged workers – a measure of workers who would like a job but are not searching and believe no jobs are available for them – increased from 119,000 to 485,000 in September.”

Notable job gains occurred in the leisure and hospitality (+83,000) and health care (+60,000) sectors. Employment in construction continued to trend up (+19,000), in line with average monthly job growth in the first eight months of this year. Specialty trade contractors added 18,000 jobs in September. Employment in financial activities fell (-8,000).

Kushi noted that residential building construction employment decreased a modest 0.1%, while non-residential construction employment picked up 0.3%.

“Residential building is up 7.4% compared with pre-pandemic levels, while non-residential building remains approximately 5% below,” she said. “The bigger gains this month came from specialty trade contractors, both residential and nonresidential. This subsector includes companies that primarily perform specific activities, such as pouring concrete, site preparation, plumbing, painting and electrical work.”

While the construction industry has faced a labor shortage for many years, she added, “the slowdown in the housing market and homebuilding – particularly for single-family homes – will likely put downward pressure on job gains in months to come.”

 

Give the mixed results from the September jobs report, Fratantoni said the MBA expects “the Federal Reserve will increase rates by at least another 50 basis points in November and could do more if inflation fails to decelerate.”

 

The Fed’s Federal Open Market Committee does not meet October, and is scheduled to meet again on Nov. 1-2.

 

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