The U.S. labor market crushed expectations in October, with unemployment ticking down and employers adding far more jobs than estimated.
U.S. employers added a whopping 165,000 jobs to payrolls last month, the Bureau of Labor Statistics reported on Friday. That dramatically surpassed the consensus forecast among economists surveyed by FactSet, which called for a gain of 65,000 jobs, a healthy increase after September's revised 60,000 payroll gain.
The national unemployment rate was 4.1% for October, marking 62 straight months of a jobless rate that has remained under 5%. That's just shy of the record 64 months that occurred from 1965 to 1970.
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The October jobs report should show a stable labor market, giving the Federal Reserve the go-ahead to raise interest rates next month.
Low layoffs have balanced out tepid hiring trends for most of this year. If that dynamic continued in October, the central bank should have enough cover to deliver the rate increase that markets are increasingly expecting.
The Bureau of Labor Statistics will publish the October employment data on Friday at 8:30 a.m. ET. Economists surveyed by FactSet predict that employers added 65,000 to payrolls last month, keeping the national unemployment rate steady at 4.2%.
The Chicago Fed, however, is forecasting that unemployment will dip back to 4.1% for October, because of an increase in hiring and a decrease in layoffs.
Challenger, Gray & Christmas reported that layoff levels in October were down 71% year over year. Moreover, the number of initial jobless claims fell to 189,000 for the week of Oct. 31, the lowest level in two months.
Most of the other early employment indicators signal positive October job gains, especially compared with the measly 29,00 jobs gained in September. ADP reported Wednesday that private employers added 86,000 jobs in October, the same pace as September.
The Institute for Supply Management's measure of nonmanufacturing employment was up in October. And while the ISM's gauge for manufacturing job growth did pull back slightly from September, it was still up from the beginning of the year.
Positive payroll gains and steady unemployment should keep Fed officials firmly focused on higher inflation heading into their last policy meeting of the year on Dec. 8-9. The odds of the Fed implementing a interest-rate hike in December are currently hovering at 70%, according to the CME FedWatch tool. A strong jobs report on Friday, paired with expected higher inflation readings for October, will likely push those odds higher.
But the recent pace of job growth still lacks a lot of the dynamism typically present in previous periods of healthy labor markets. And many economists don't see a pickup in hiring coming in the near-term. So while the labor market is stable enough to justify rate increases, it isn't actually super strong.
A head-scratching dynamic offers more evidence of that: Hiring, quitting, and layoffs have been persistently low -- all at the same time. It is quite unusual for all three to move in tandem, especially outside of a recession, says Bruce Fallick, a senior vice president at the Federal Reserve Bank of Cleveland.
Hires and quits tend to rise and fall together over a business cycle, while layoffs typically move opposite to both of those. In fact, hiring and quitting are usually low during recessions -- when layoffs are high. But the U.S. isn't in a recession.
Some longer-term trends do explain the low hiring and quit rates, such as demographic factors. The population, and the workforce, is aging.
"Older people don't tend to change jobs as much and they don't tend to change location as much," Fallick says. Higher levels of education have also led to greater job stability. All of those factors are expected to remain in place, he adds.
But there are still unexplained factors behind these trends, Fallick says. Technological advances, more remote work, and the rise of two-income households in recent decades could all have a role in the low-hire, low-fire, low-layoff economy.
Overall, all of these indicators signal that the U.S. labor market is more vulnerable to shocks. So while the Fed can push to rein in price growth on the months ahead, policymakers and investors can't afford to take their eyes off employment, either.
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