Why the 'good' jobs news is tentative

Friday’s job numbers, showing what happened in October, have experts trying to parse the results. It’s tough because things are moving in various directions and trying to outguess what the Federal Reserve might do in terms of future interest rate hikes is difficult.

The number of jobs created, 261,000 in October, is historically strong and economists had expected a number closer to 200,000, according to the New York Times. But as Economic Policy Institute president Heidi Shierholz noted on Twitter, that is far off the average pace of 539,000 per month from the first quarter of 2022.

The unemployment rate, at 3.7%, was “up for the wrong reasons” — fewer people working and fewer looking — according to a tweet from Andrew Stettner, a senior fellow at the Century Foundation.

When people aren’t looking for work, federal data treats them as no longer part of the workforce. Those who are no longer in the workforce also don’t count as unemployed. The mathematics of it largely guarantees that as a result the unemployment rate will rise.

In addition, there were 306,000 more people considered unemployed in October than in September, and, for any wondering, Hurricane Ian had no discernable impact according to the Bureau of Labor Statistics.

At the same time, if anything, many people are working beyond fulltime, according to a statement from ManpowerGroup president and chief commercial officer Becky Frankiewicz. “We are seeing a wave of ‘over-employment,’ with a record number of Americans pulling double-duty, taking on second full-time jobs to supplement their income and offset higher-than-normal day-to-day and holiday shopping expenses,” she wrote.

A big reason for that is inflation. “Over the past 12 months, average hourly earnings have increased by 4.7%, not keeping up with inflation,” noted Jeffrey Roach, chief economist for LPL Financial, in an email.

“The labor force participation rate ticked down to 62.2% and has yet to budge from its range of 62.2-62.4% since March, further underscoring the lack of available workers in the economy,” wrote Dr. David Kelly and Stephanie Aliaga of J.P. Morgan Asset & Wealth Management.

So, the labor market is tight, people aren’t making enough money to keep up with inflation, and chances are that the reason for falling employment is a lack of individuals available to take jobs, with the number of openings jumping in September to 10.7 million, as government figures showed.

Related: U.S. companies added 208,000 people to their payroll in September

“So, what does this mean for the economy – and markets?” Brad McMillan, chief investment officer for Commonwealth Financial Network, asked in a note. “The Fed will welcome the slowdown in job and wage growth, but they still likely remain too high to contain inflation, so expect continued tight policy in the short run.  As long as job growth stays healthy, so will demand growth, and so will inflation.  But the slowing trend is good news and suggests we might be back to something like normal in the next six months or so – which could lead to a Fed pause.”

But it also might mean not enough people to do jobs in the future, and so more potential upward pressure on wages, which won’t make the Fed happy.

In the immediate future, a 50-basis point increase is still likely in December’s cards for the Fed and the federal funds rate.