The US Job Market Shows No Signs Of Cooling

The US Job Market Shows No Signs Of Cooling
Stéphane Renevier, CFA

over 1 year ago2 mins

What just happened?

If the Federal Reserve (the Fed) was looking for clues that its aggressive course of interest rate hikes was having the desired effect – slowing the economy and cooling its ultra-hot inflation – it sure isn’t going to find them in the latest jobs data. The US labor market is just moving from strength to strength.

The US economy added 261,000 new jobs in October, considerably more than the 190,000 economists expected. Wages were better too, even higher than a month ago. The data also revised the job gains for the month of September, to 315,000, from the 263,000 that was initially reported. In fact, the only sign of weakness in the data was the unemployment rate, which moved one tick higher, to 3.7% – above its pre-pandemic lows.

What does it mean?

Fed Chair Jay Powell was right: this job market really is “out of balance”, with demand for workers still outpacing supply and pushing wages higher. Now, having these three things at the same time – a strong labor market, an aggressive rate-hiking cycle, and a slowing economy – is unusual, but it’s not altogether surprising: it takes months for the effect of higher interest rates to feed through the economy, and the job market is one of the last dominoes to fall (we explain why here). But this job market has been especially resilient, and no one really knows why (not even Powell, which is not exactly ideal).

Perhaps more importantly, a labor market this hot isn’t going to help bring inflation down. And if inflation isn’t falling, the Fed can’t pivot or even break its stride in its hiking campaign. And if the Fed isn’t pivoting, then the risks of a deep recession and or other financial catastrophe are increasing.

Why should you care?

Let’s face it, this report on its own isn’t likely to alter the Fed’s approach. The report is backwards-looking and it wasn’t much different than expected. The consumer price index (CPI) number – released next week – might have a lot more sway in that regard. But keep an eye on the labor market, because until it finally shows signs of softening, the downside risks (to both the economy and your portfolio) will keep building.

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