Further Fed interest rate hikes expected after strong month of job gains

U.S. employers slowed hiring in September but still added 263,000 jobs, a solid number that will likely keep the Federal Reserve on pace to continue to aggressively raise interest rates to combat still-high inflation .

Friday’s government report showed hiring fell from 315,000 in August to the weakest monthly gain since April 2021. The unemployment rate fell from 3.7% to 3.5%, matching a low in ‘a half-century.

The Fed hopes that a slower pace of hiring would ultimately mean less pressure on employers to raise wages and pass those costs on to their customers through price increases — a recipe for high inflation. But September’s job growth was probably too robust to satisfy the central bank’s inflation fighters.

Hourly wages last month rose 5% from a year earlier, the slowest year-over-year pace since December, but still warmer than the Fed would like. The proportion of Americans who have a job or are looking for one has fallen slightly, a disappointment for those who hope that more people will enter the labor market and help ease labor shortages and pressure to the increase in wages.

The jobs report “was probably still too strong for (Fed) policymakers to breathe,” said Matt Peron, director of research at Janus Henderson Investors.

Similarly, Rubeela Farooqi, chief U.S. economist at High Frequency Economics, said she didn’t think September’s decline in jobs and wages would stop the Fed from raising its benchmark short-term rate in November by an unusually high three quarter points for the fourth consecutive time – and an additional half point in December.

On Wall Street, stocks fell Friday morning – a sign that investors expect more aggressive Fed rate hikes to come. The S&P 500 index fell 1.9% in early trading. And the yield on the 2-year Treasury, which tends to follow Fed stock expectations, rose to 4.31% from 4.26% on Thursday evening.

Public concern over high prices and the prospect of a recession is also having political ramifications as President Joe Biden’s Democratic Party struggles to retain control of Congress in November’s midterm elections.

In its epic battle to contain inflation, the Fed has raised its benchmark interest rate five times this year. It aims to slow economic growth enough to bring annual price increases back towards its 2% target.

He has a long way to go. In August, a key measure of year-on-year inflation, the consumer price index, stood at 8.3%. And for now, consumer spending – the main driver of the US economy – is showing resilience. In August, consumers spent slightly more than in July, a sign that the economy was holding up despite rising borrowing rates, violent fluctuations in the stock market and inflation in the price of food, rent and other necessities.

Fed Chairman Jerome Powell has warned bluntly that the fight against inflation “will bring pain,” including in the form of layoffs and rising unemployment. Some economists remain hopeful that despite persistent inflationary pressures, the Fed will still manage to achieve a so-called soft landing: slowing growth enough to bring inflation under control, without going so far as to tip the economy into recession.

This is a notoriously difficult task. And the Fed is trying to accomplish it at a perilous time. The global economy, weakened by food shortages and soaring energy prices resulting from Russia’s war on Ukraine, could be on the verge of recession. Kristalina Georgieva, managing director of the International Monetary Fund, warned on Thursday that the IMF was revising its estimate of global economic growth by $4 trillion through 2026 and that “things are more likely to get worse before they get better. “.

Powell and his colleagues on the Fed’s policy-making committee want to see signs that the abundance of available jobs — there are currently an average of 1.7 vacancies for every unemployed American — will steadily decline. Encouraging news came this week, when the Labor Department reported job openings fell by 1.1 million in August to 10.1 million, the fewest since June 2021.

On the other hand, whatever the level of history, openings remain extraordinarily high: in records dating back to 2000, they had never exceeded 10 million in a month until last year.

Last month’s drop in unemployment was broadly spread across demographic groups. The unemployment rate for Hispanics fell to 3.8%, the lowest level on record by the government since 1973. Unemployment for black Americans also fell, from 6% in August to 5.8% in September, still above its record low of 5.1% in November 2019.

In September, restaurants and bars added 60,000 jobs, as did healthcare businesses. State and local governments cut 27,000 jobs. Retailers, transportation and warehousing companies reduced employment slightly.

Many Americans seem to have decided that there are still plenty of jobs available and they can take their time to take one. Among them is Jenny Savitscus of Columbus, Ohio, who recently earned a technology certificate through a program run by Goodwill. Savitscus, 45, who would like a high-tech job, said she was ready to wait for an employer who will offer flexible hours and work-from-home options.

“There are opportunities there,” she said. “Employers and job seekers are trying to find the right balance” between work and personal life. She said she could afford to wait for the right job because she had two part-time teaching jobs.

Friday’s government report highlighted how the labor market remains resilient even as it slows.

“The U.S. labor market continues to slow, but there’s no sign of it stagnating,” said Nick Bunker, head of economic research at the Indeed Hiring Lab. “Payroll growth is no longer at the jet speed we saw last year, but employment continues to grow rapidly.”

Radial, a company that powers the online businesses of Lucky Brands, Tommy Hilfiger and Calvin Klein, is one employer that is hiring more cautiously. The company plans to hire 15,000 seasonal workers at its 25 warehouses – 7,000 fewer than a year ago – and 2,000 at its customer service centers, said Sabrina Wnorowski, Radial’s chief human resources officer. based in King of Prussia, Pennsylvania.

Wnorowski said the company’s more moderate approach to hiring reflected a renewed focus on adding workers closer to the peak of the holiday season to make them more productive. She noted that online sales growth is slowing and the tight labor market appears to be weakening a bit. Peloton, for example, the maker of high-end exercise equipment, announced on Thursday that it was cutting 500 jobs, or 12% of its workforce.

Yet some companies continue to forge ahead with hiring. Walt Rowen, president of Susquehanna Glass Co. in Columbia, Pa., said the company, which makes decorative glass products, needs about 15 seasonal workers as well as a full-time staff of 40 to 45. Rowen raised the starting wage from around $9 an hour before the pandemic to $14 an hour and yet he is still struggling to fill vacancies.

“It’s getting harder and harder,” he said. “Before, you could interrogate 10, bring five and keep three. Now we interrogate 20, get five and keep one.

Stephen V. Lee