Job growth in the US was the smallest in almost two years in October, unemployment increased

WASHINGTON, Nov 4 (Reuters) – U.S. employers likely hired the fewest workers in nearly two years in October and increased wages at a moderate pace, suggesting some easing in labor market conditions that will allow the Federal Reserve to shift toward smaller rate hikes starts in December.

The Labor Department’s closely watched employment report on Friday is also expected to show the unemployment rate ticking up to 3.6% from 3.5% in September. The Fed delivered another 75 basis point rate hike on Wednesday, saying the fight against inflation would require borrowing costs to rise further.

But the central bank signaled that a turning point may be approaching in what has become the fastest tightening of monetary policy in 40 years.

“The labor market is basically OK, but it seems to be slowing down,” said Guy Berger, chief economist at LinkedIn

in San Francisco. “The Fed is going to try to thread the needle where they slow the labor market enough to put downward pressure on wages and inflation, without causing a recession.”

Nonfarm payrolls likely rose by 200,000 jobs last month after rising 263,000 in September, according to a Reuters poll of economists. That would be the smallest gain since December 2020, when payrolls fell amid an onslaught of COVID-19 infections. Estimates ranged from 120,000 to 300,000.

The employment gain was probably almost evenly distributed among industrial sectors, in line with recent patterns, with the leisure and catering industry at the forefront. Employment in leisure and hospitality is still below the pre-pandemic level with at least one million jobs. Interest-sensitive industries such as financial services as well as transport and storage are likely to lose jobs as they did in September. Public payrolls are falling further.

Hurricane Ian is expected to have put a small dent in payrolls. The storm slammed into Florida in late September and boosted jobless claims in mid-October, as the government surveyed businesses for last month’s employment report.

“Hurricane Ian should at least have a downward impact on nonfarm payrolls,” said Lou Crandall, chief economist at Wrightson ICAP in Jersey City. “We have lowered the forecast slightly to show an increase of 150,000 (from 200,000) assuming at least some workers were sidelined in the areas hardest hit by the hurricane.”

REPLACEMENT POSITIONS

Job growth has remained solid even as domestic demand has slowed amid higher borrowing costs as companies replace workers who would have quit. But with recession risks rising, this practice may end soon. A survey by the Institute for Supply Management on Thursday found that some companies in the service industry are “holding back on filling vacancies” due to uncertain economic conditions.

The labor market is still tight, with 1.9 vacancies per unemployed person at the end of September.

Average hourly earnings are forecast to have increased by 0.3%, corresponding to September’s gain. But there is a risk of an upside surprise due to Hurricane Ian, as well as a calendar quirk. According to Wrightson ICAP’s Crandall, storms and other events that keep people out of work during the wage survey week can artificially inflate the reported level of hourly earnings.

The government surveys businesses and households during the week that includes the 12th day of the month.

“The wage survey week included the 15th of the month, which tends to affect the month-over-month change higher, since wage increases secured by those workers paid at the middle of the month and at the end of the month rather than every other week are more likely to have been captured,” said Kevin Cummins, chief U.S. economist at NatWest Markets in Stamford, Connecticut.

Wage growth is cooled by removing any distortions from the weather and calendar whims. Average hourly earnings are estimated to have increased 4.7% year-over-year in October after rising 5.0% in September. Other wage measures have also been phased out, which bodes well for inflation.

“We think we’ve seen a peak in wage growth,” said Michelle Green, chief economist at Prevedere in Columbus, Ohio. “So while we will continue to see year-over-year growth in average hourly earnings for all private sector employees, the rate of that growth is really starting to slow.”

Reporting by Lucia Mutikani; Editing by Cynthia Osterman

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