October Job Growth Surges Above Forecasts

U.S. employers added 261,000 new jobs in October, much more than expected, according to the latest employment report from the U.S. Bureau of Labor Statistics (BLS). The data is more evidence that one of the hottest labor markets on record is remarkably resilient amid measures to tame inflation. Hiring is running at a strong pace into the crucial holiday season despite reports of layoffs from some of the country's biggest companies.

The BLS also revised its September employment estimate up to 319,000 from its original estimate of 263,000. The monthly average of new jobs created prior to the pandemic was around 200,000. The new figures come as the Federal Reserve is on a campaign to bring down inflation by slowing down a labor market where there are still nearly two jobs for every available unemployed worker.

"Today's jobs report shows that the labor market is cooling, but only very, very gradually," said Julia Pollak, chief economist at ZipRecruiter. "Job gains remain about 60 percent larger and substantially more broadly distributed across industries than before the pandemic. The pace of gains is only very gradually edging back to normal."

Annual wage growth softened, and the unemployment rate increased marginally to 3.7 percent, pointing to a cooling but relatively level labor market, said John Gulnac, vice president at Adecco. "While companies may be taking more caution with their hiring strategies, the number of new jobs added in October indicate that we are still in a favorable environment for job seekers."

Pollak added that employers are preparing for the possibility of a downturn, but will continue hiring as long as demand for most goods and services remains strong.

Nick Bunker, the economic research director for North America at the Indeed Hiring Lab, pointed out that the average growth of 289,000 jobs a month over the past three months "is much slower than last year, but it stacks up well by most standards."

However, he added that "a look below the surface reveals some troubling currents. Payroll growth is still strong, but some previous leading sectors are pulling back. Unemployment is still low, but rates of job finding are declining and the prime-age employment to population ratio dropped dramatically."

Health Care Leads Gains

Employment in health care rose by 53,000 in October, with gains in ambulatory health care services (31,000), nursing and residential care facilities (11,000), and hospitals (11,000). So far in 2022, health care employment has increased by an average of 47,000 per month, compared with 9,000 per month in 2021.

"The pace of hiring in health care roles such as registered nurses continues to increase in demand, propelled by flu season and shifting COVID rates," said Becky Frankiewicz, president and chief commercial officer at ManpowerGroup.

Leisure and hospitality employers posted solid growth, up 35,000 jobs and manufacturing grew by 32,000 jobs. "Many of the jobs added in hospitality last month are seasonal positions, but the sector has been on an upward swing over the past few years, adding an average of 78,000 jobs per month this year so far and 196,000 jobs per month last year," Gulnac said. "Although a far cry from prepandemic numbers, the sustained job growth in leisure and hospitality suggests that many of the businesses hit hardest by the pandemic—like hotels, restaurants, and bars—are hiring more workers to keep up with an increase in demand for their services as pandemic-related anxiety continues to ease."

Heading into the holiday shopping season, retail posted only a modest gain of 7,200 jobs.

"In the last leg of 2022, we are seeing an increased number of job openings in transportation, from freight delivery to uber drivers," Frankiewicz said. "Our own real-time data shows a tapering off of demand for jobs in rate-sensitive industries such as finance and insurance, and in manufacturing, we've seen a pullback too. Steps away from the year-end finish line, companies that break away from the pack are those sustaining a comprehensive set of coordinated actions to build, retain and upskill their workforces."

Very few industries shed jobs, and most of the losses were small, Pollak said. "The exception was warehousing and storage, which registered a loss of 20,000 jobs due to seasonal adjustment factors, but actually gained almost 10,000 jobs on an unadjusted basis."

Economists agree that layoffs from high-profile tech companies reported in the media are not being reflected industry-wide, as technology jobs continue to grow. "There's no question there are high-profile Silicon Valley layoffs, but overall the tech sector is still healthy and adding jobs," said Bledi Taska, chief economist at Lightcast. "The narrative doesn't always match the numbers."

Unemployment Rate Jumps Up

The number of people counted as unemployed rose by 306,000 to 6.1 million in October. The unemployment rate edged up 0.2 percentage point even though the labor force participation rate declined by one-tenth of a point to 62.2 percent. The unemployment rate has been in a narrow range of 3.5 percent to 3.7 percent since March. An alternative measure of unemployment, which includes discouraged workers and those holding part-time jobs for economic reasons, also increased to 6.8 percent.

"The jump in the unemployment rate is not yet raising a red flag," said Daniel Zhao, Glassdoor senior economist. "The unemployment rate is still near historic lows, but the weakening labor force participation rate is pushing the labor market in the wrong direction as the Fed tries to cool the job market while keeping Americans employed. However, if the increase in the unemployment rate becomes more sustained, that would be a canary in the coal mine for the health of the labor market."

Bunker said that the rise in the unemployment rate was troubling, but the stark dropoff in the prime-age employment-to-population ratio should be even more of a concern.

"A nightmare scenario keeps unfolding," said Ron Hetrick, a senior economist at Lightcast. "Inflation is not driving people back to work. The number of those 'not in the labor force' jumped, and the number of those who are 'out of work but want a job' fell."

Wage Growth Slows

Wage growth is still well short of the rate of inflation as average hourly earnings grew 4.7 percent from a year ago, reflecting a slowdown from 5 percent in September.  

"Cooling demand for workers and declining turnover are tamping down wage growth," Zhao said. "The Federal Reserve is watching for wage growth to cool, but ultimately, cooling wage growth is only important inasmuch as we see lower inflation as a result."

Business Leaders Brace for Recession

A majority of chief human resource officers surveyed by PwC said they expect to reduce their headcount through layoffs, voluntary retirement, performance-based staff cuts and hiring freezes in the coming months.

Despite that, CEOs surveyed by the firm say they are confident about the future and nearly half (44 percent) said they are hiring in specific areas to drive growth.  

"Despite continued job market resilience, job seekers and employers are both worried that they may be in for a bumpy ride," Pollak said.

She added that job seekers have become less likely in recent months to quit a job without another lined up, they are prioritizing job security more highly and they're becoming less likely to negotiate an offer before accepting it.

"While employers say that a scarcity of qualified candidates and fierce competition for talent remain their biggest challenges, many are starting to find it a bit easier to recruit and retain workers," she said.