While employers adding almost as many workers to their payrolls as expected is usually good news, on Friday it spooked the stock markets.
The Bureau of Labor Statistics (BLS) reported U.S. nonfarm payrolls added 263,000 jobs last month, below expectations for 275,000, and down from August’s additions of 315,000, which were unrevised. With the labor force participation rate little changed at 62.3% in September, the U.S. unemployment rate fell back to its pandemic-era low of 3.5%.
The jobs market data may still be good enough keep the Federal Reserve on course to raise interest rates. The equity markets soured on the news, with the Dow Jones Industrial Average dropping 768 points as of an hour before Friday’s pre-Columbus-Day close.
“Payrolls have increased by an average of [372,000] over the past three months, suggesting labor demand remains exceptionally strong,” wrote BofA Securities economists in post-data-release commentary. In particular, strength in the goods-producing sector surprised BofA economists, as 44,000 jobs were added.
“We had thought that the rotation of household spending toward services, the retrenchment in housing activity on the heels of the shock to affordability, and the lagged effects of tighter financial conditions on demand for durables would soften labor demand in the sector,” wrote the economists.
Manufacturing and construction payrolls held up, adding 22,000 and 19,000, respectively, on the month.
The consensus is the “Fed is unlikely to pivot in the direction of a slower pace of rate hikes until it has more clear evidence that employment growth is slowing,” according to BofA, and that the Fed will hike the Fed funds rate another 75 basis points at its November 2 meeting.
Investors are worried a continuing tight labor market will force employers into another round of wage increases, fueling inflation. In, September, average hourly earnings for all employees on private nonfarm payrolls rose 0.3%, to $32.46. That lowered the 12-month increase to 5%.
On CNBC, David Kelly, chief global strategist at JPMorgan Asset Management, said the markets were misreading the jobs report. He pointed out that the 5% wages increase was the lowest since December 2021. JPM expects the 12-month consumer price index (CPI) to clock in at 8% for September.
“Are wages adding to inflation or actually subtracting from it? I would argue they are pulling the inflation rate down slowly,” he said. “The Federal Reserve should be a little more patient in interpreting this as somehow inflationary, because I don’t really think it is.”
Recession concerns are leading to increased uncertainty, and “companies across sectors are beginning to reassess staffing needs,” according to Andrew Challenger, senior vice president of Challenger Gray & Christmas.
Typically, retail and transportation/warehousing are ramping up hiring for the holiday season and announcing their plans in September. This low figure suggests companies that typically staff seasonal hires are waiting to see whether consumers will show up for the holiday season. — Andrew Challenger, Challenger, Gray & Christmas
In September, the outplacement and executive coaching firm’s job cuts research found U.S. employers announced plans to hire 380,014 workers, the lowest September total since 2011, when 76,551 hiring plans were announced.
“Typically, retail and transportation/warehousing are ramping up hiring for the holiday season and announcing their plans in September. This low figure suggests companies that typically staff seasonal hires are waiting to see whether consumers will show up for the holiday season,” said Challenger.
Meanwhile, the U.S.’s large multinational corporations appear to be going through the cyclical practice of shedding employees in preparation for a downturn in economic growth.
U.S.-based employers announced 29,989 cuts in September, a 46% increase from the 20,485 cuts announced in August and up 67% from a year earlier, according to Challenger, Gray & Christmas.
Retailers led in job cut announcements in September with 9,273.
In other industries, General Electric is slashing “hundreds of jobs” at its onshore wind-turbine unit amid mounting losses, reported Bloomberg News on Friday, citing anonymous sources. The unconfirmed cuts would affect about 20% of the U.S. based wind workforce at the main renewable-energy business.
Overall, though, jobs cuts are not accelerating. In the third quarter, employers announced 76,284 job cuts, down 1.6% from the 77,515 cuts announced in the previous quarter. Year-to-date, job cuts are down 21% from last year and near the lowest total since Challenger started tracking the numbers in 1993.
With U.S. GDP growth numbers expected to land in positive territory in the third quarter, CFOs may be hoping the economy will avoid a hard landing. But the global growth forecast for 2023 is worsening.
The International Monetary Fund is set to lower its global GDP forecast for next year to 2.9%, said IMF Managing Director Kristalina Georgieva, in her opening speech at the fund’s annual meeting.
“All of the world’s largest economies are slowing down — the euro area is severely impacted by the reduction of gas supplies from Russia; China suffers from pandemic-related disruptions and a deepening downturn in its property market; and momentum is slowing in the United State as inflation reduces disposable income and consumer demand, and higher interest rates are a drag on investment.”
Global economic output losses could total about $4 trillion between now and 2026, said Georgieva, “the size of the German economy.”