Commentary on today’s US Bureau of Labor Statistics Employment Situation Report 

Today’s jobs report points to a cooling labor market, with 150,000 jobs added in October, after a downwardly revised increase of 297,000 jobs in September (Chart 1).  While labor markets are still tight, with elevated job openings and few layoffs compared to historical norms, the hiring rate is at its the lowest level since 2018. Meanwhile, average hourly earnings grew by 4.1% in October year-over-year, slower than September (4.3%). Today’s data do pose some risk to our call for an additional interest rate hike in December. If inflation and labor data continue to cool, then the Fed may be done hiking interest rates.

The unemployment rate is gradually rising, consistent with continuing jobless claims

The unemployment rate ticked up to 3.9% in October (from 3.8% in September) according to the Household Survey. It is now 0.5 percentage points higher than earlier this year. There are no signs of an immediate increase in layoffs, with job cut announcements declining in October and initial unemployment claims staying low. However, continued claims are on the rise, suggesting those who lost their jobs are having a harder time finding a new one. -   

The Labor force participation rate ticked down to 62.7% in October (from 62.8% in September). Younger workers in their twenties have still not returned to the labor market completely with the participation rate for those between ages 20-24 declining to 70.8%, which is 2.3 ppts below February 2020. Similarly, the participation rate for the population aged 65 and older remained well below the prepandemic rate at 19.0% in October versus 20.6 just before the pandemic. The participation among the prime age population (aged 25-64) ticked down as well to 74.9% (down from 75.1%). Nonetheless, it is still on an upward trend. The youngest age group (aged 16-19) recorded an increase in the participation rate in October – rising 1.4 ppts to 37.9%.    

Job gains are mostly concentrated in a few industries

In October, the largest job gains were in health care (+58,000), social assistance (+19,000), leisure and hospitality (+19,000), and government (+51,000). For the 12-month period ending in October, 73% of all job gains came from these industries. By comparison, these industries accounted for 37% of job gains in the decade that ended in 2019.

Some of this outsized share of gains is due to the slow recovery of leisure and hospitality and the government sector from pandemic-era job losses, as employment in these industries is still below February 2020 levels. The health care and social assistance industry accounted for 31% of job gains in the past 12 months compared to 18% of job gains in the previous decade. This is likely a function of increased demand for care as the US population continues to age. Other industries that added jobs in October included professional and business services (+15,000) and construction (+23,000).

Manufacturing recorded a loss of 35,000 jobs due to the autoworker strikes. However, with the recently settled union contracts between UAW and car manufacturers, a jobs rebound is expected in the industry.

Elsewhere, job losses in October were mostly concentrated in industries that have been shedding jobs over the past year. These include the information services sector (−9,000 in October and -102,000 since November 2022), finance and insurance (−7,800 in October), and transportation and warehousing (−12,100 in October and −55,500 over the last 12 months).  Temporary help services—a leading indicator for hiring—added 6,600 jobs in October but have been on an overall downward trend, losing a cumulative −192,900 jobs over the last 12 months.

Growth in wages and benefits remains elevated

As today’s report showed, wage growth remains well above historic norms, but is gradually cooling. The BLS's Employment Cost Index (ECI) also revealed that compensation growth in the third quarter of 2023 remained very elevated relative to historical trends but is showing signs of overall easing.  

According to the ECI report, private sector wages grew by 4.5% in Q3 2023 over the past year, which is slightly slower than the 4.6% rate in Q2 2023 but sharply down from 5.2% in Q2 2022. Benefits costs growth remained at 3.9% in Q3 2023, the same as the previous quarter but below its 5% growth in Q2 2022.

At a more granular level, the report showed that there is now convergence in wage growth among occupations (Chart 2). Industries that experienced the fastest increases in wages are seeing cooling, while others are continuing to tick upward.

Wages for service workers (e.g., food services, cleaning, and personal care), which experienced the fastest growth during the pandemic recovery, saw wages in Q3 2023 expand at a 4.9% pace over the last year. This is significantly slower than the 5.7% rate in Q2 2023 and down from its high of 8.6% in Q1 2022. Also, wages for production and transportation workers increased by 4.2% (down from 4.8% in the last quarter) and by 4.4% for sales and office workers (down from 4.8% in the last quarter).

Meanwhile, wages for construction, natural resources, and maintenance workers, which exhibited slower rates of growth amid the pandemic period, grew by 4.7% in Q3 2023, up from 4.6% in Q2 2023. Similarly, wage growth showed no signs of slowing for management and professional workers at 4.5% in Q3 2023 (up from 4.3% in Q2 2023).

What is the Wage and Jobs Outlook for 2024?

Further slowing in wage growth may be more challenging due to labor shortages. Indeed, most CEOs of Fortune 500 companies, according to our CEO Confidence Survey, anticipate that they will continue to struggle with hiring qualified workers and raise wages at more than 3% over the next year. Additionally, our Labor Shortages Risk Index suggests that labor shortages, especially for in-person jobs and manual laborers may remain elevated over the foreseeable future.

We expect that the labor market will continue adding jobs over the coming months albeit at a slower rate. Select industries, including health care and social assistance may continue hiring even amid an economic downturn. We do anticipate some negative payroll prints in 2024, but the unemployment rate may only rise to 4.2%, again reflecting persistent labor shortages.