Economic Preview: New jobs created in October likely to dip to two-year low, but not enough to tame inflation


Job openings have fallen from a record high and hiring has slowed, but not enough to mollify a Federal Reserve bent on crushing high inflation.

Here’s what to watch in the October employment report on Friday morning:

Wall Street forecast

The U.S. likely added 205,000 new jobs in October compared to 263,000 in the prior month, according to a poll of economists by The Wall Street Journal.

Such an increase would be the smallest since the end of 2021 — but no one would call it weak. After all, the economy added an average of 191,000 jobs a month in the two years before the pandemic at a time when the labor market was considered particularly strong.

Whatever the case, the labor market is still too hot for the Fed. The central bank wants to see job openings and hiring slow even further to ease the upward pressure on worker wages.

The Fed is worried the ultra-tight labor market is now feeding into high inflation and making it harder to get prices under control.

Simply put, there are too many jobs available and not enough workers.

“The labor market is not quite as hot as it was six months or a year ago, but it remains plenty strong,” said Stephen Stanley, chief economist at Amherst Pierpont Securities.

Unemployment rate

Wall Street


predicts the unemployment rate will stay at 3.5%, keeping it near the lowest level since the late 1960s.

The low jobless rate reflects how hard it is for companies to find enough workers, especially in the COVID era. Lots of people who left the workforce early in the pandemic have not returned.

The Fed’s bid to tame inflation with high interest rates, however, is bound to slow the economy enough to raise unemployment. The Fed itself predicts the jobless rate will climb to 4.4% by next year — and many private economists see the rate going even higher.

Size of the labor force

The share of the working-age population in the labor force fell a tick in September to 62.3%. That means 62 of every 100 people 16 or older are either working or actively looking for work.

Yet this so-called participation rate is still more than a point below the pre-pandemic peak and underscores the lack of available workers.

More people joining the labor force would ease the worker shortage and upward pressure on wages, Fed officials say.

It’s not all bad news. The people missing from the workforce tend to be teenagers and those close to or at retirement age.

The share of workers in their prime — seen as ages 25 to 54 — has risen to 82.7% from a pandemic low of 79.9% and is close to precrisis levels.

Worker pay

The labor squeeze has given workers the kind of leverage over employers they haven’t enjoyed in decades. Record numbers of people have quit to take better jobs or get higher pay.

As a result, average hourly pay has jumped 5% in the past year.

The increase in pay has slowed since peaking at a 5.6% rate in the spring, but wages are still rising too fast for the Fed’s comfort.

Economists forecast a 0.3% gain in hourly wages in September. That would lower the yearly increase to 4.7%.

Wages were growing at a more modest 3% pace before the pandemic.

Fed reaction

Senior Fed officials hope to see slower job gains, more people joining the labor force and tamer wage growth. They would also view a modest increase in unemployment as helpful to their effort to rein in inflation.

A stronger-than-expected jobs report, however, would keep the pressure on the Fed to raise rates even higher, potentially disrupting the recent rally in the stock market. The Fed on Wednesday raised interest rates again.

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