Federal Reserve Chairman Kevin Warsh devoted just a few words to the labor market at his news conference on Oct. 28, assuring the audience that employment conditions are stable. "Job gains have kept pace with the workforce, and the unemployment rate has changed little, so on the employment side of the Fed's dual mandate, conditions are quite positive," he said, before pivoting to a discussion of inflation.
Yet the labor outlook may not be as rosy as Warsh suggested. Payroll growth is noticeably above last year's pace, but this year's average monthly gain of 68,000 isn't especially strong, and the drivers behind sluggish job growth aren't fading.
Policymakers can't afford to ignore the weakness. Higher short-term interest rates may help to cool inflation, but they could put further strain on the labor market's health.
The Bureau of Labor Statistics is set to release October's employment data on Nov. 6. Economists project that employers added 55,000 jobs to payrolls in the month. That would be enough momentum to keep the national unemployment rate steady at 4.2%.
Most Fed officials are upbeat about labor conditions because unemployment trends remain historically low within the estimated bounds of full employment. The unemployment rate ticked up by just a tenth of a percentage point in September, and initial unemployment insurance claims have run at some of the lowest levels since the 1960s in recent weeks.
The Indeed Job Postings Index rose 0.3% in October, and the latest business surveys point to a stronger gain in payrolls over the past month. But new postings as defined by Indeed didn't improve in October.
ADP's measure of weekly private payrolls points to a monthly gain of around 65,000 jobs in October, down from September's reported advance of 90,000. The next ADP National Employment Report will be released Nov. 4.
LinkedIn reports that hiring in September remained 3.4% below its level of a year ago.
The data collectively point to a tight labor market, which stems largely from a lower supply of available workers. Restrictive immigration policies, deportations, and an aging workforce have shrunk the labor supply in the past few years, reducing hiring, which has kept the market in balance.
Although layoffs are relatively low, job prospects are challenging for the unemployed, writes Matthew Martin, senior U.S. economist at Oxford Economics. As of September, 27.1% of unemployed people had been jobless for more than 27 weeks, up from 24.7% in January.
The relative health of the labor market varies substantially by sector and even by region. Some sectors that once delivered reliable gains, such as healthcare and social assistance, are showing signs of slowing, while others aren't picking up the slack. Healthcare and social assistance, which includes support aides and social-work roles, have averaged 41,000 monthly job gains this year, down from an average monthly pace of 57,000 in 2025 and 74,000 in 2024.
Construction and manufacturing have reversed the hiring declines they saw over the past two years, both netting positive results since June. Still, the average monthly gain was only 18,000 year to date through September. The data-center buildout could lead to more gains in coming months, unless higher borrowing costs slow activity.
Policymakers may find themselves playing a tricky economic version of the classic game Operation. Can they remove the "ailment" of inflation without tripping the buzzer and further weakening the labor market? We'll find out in coming months if the Fed raises interest rates further.
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