U.S Unemployment Rate Hit 3.9%

Photo by Ron Lach

The latest employment report from the Labor Department, released on Friday, revealed a notable rise in the U.S. unemployment rate, reaching 3.9% in October 2023, slightly surpassing both market expectations and the preceding month's figure of 3.8%. This represents the highest level of unemployment since January 2022.

A closer look at the data indicates a downward revision in job additions for both August and September, suggesting a deceleration in labor market momentum. Consequently, this report has reinforced the belief that the FED is done hiking interest rates. 

Nonfarm payrolls saw an increase of 150,000 jobs last month, a decline from the 297,000 reported in September, according to the Labor Department's Bureau of Labor Statistics.This figure fell short of the 180,000 jobs forecasted by economists surveyed by Reuters. 

The survey of establishments indicated a decrease in the percentage of private sector industries reporting employment increases, dropping to 52.0% from September's 61.4%, the lowest since April 2020.

Despite the evident slowdown in hiring due to the cumulative impact of Fed rate hikes, payroll gains remain well above the approximately 100,000 jobs per month needed to keep pace with the growth in the working-age population.

The financial markets now overwhelmingly anticipate the Fed keeping rates unchanged in December and January, with stocks on Wall Street rallying, the dollar weakening against a basket of currencies, and U.S. Treasury prices rising.

The report also highlighted a cooling in wage growth, with average hourly earnings rising by 0.2% in October, following a 0.3% increase in September. Over the 12 months through October, wages increased by 4.1%, the slowest growth since June 2021.

While wage pressures are easing due to an expanding labor pool and reduced job turnover, the annual growth in average hourly earnings remains above the 3.5% level deemed consistent with the Fed's 2% target.

Economists expressed divergent views on the impact of record-breaking labor contracts on wage inflation, with some suggesting that increased worker productivity could offset higher compensation, while others noted challenges in boosting productivity in a predominantly services-based U.S. economy.

The report also highlighted a decline in labor market momentum in the household survey, leading to a rise in the jobless rate. About 201,000 people dropped out of the labor force, resulting in a decrease in the labor force participation rate to 62.7% from 62.8% in September.