Fed’s Reaction To US Payrolls Data

The US economy added more jobs than expected in October even as the Fed pressed on with the central bank’s most aggressive monetary tightening campaign in decades.

Friday’s figure effectively serves as a catalyst for Fed policymakers to proceed with further rate hikes, particularly after messaging from Fed Chair Jerome Powell on Wednesday that indicated slight moderations in the data were not enough for a pause on increases given the tight labour conditions.

September’s payroll reading was also upwardly revised to 315,000 from 263,000 previously reported. Employment data has moderated in recent months, but hiring remained strong in October despite efforts by the Fed to tamp down an extraordinarily tight labour market that has placed upward pressure on wages and contributed to decades-high inflation.

The bottom line here is that the labour market is softening, but has not yet reached the point where the data are screaming at the Fed to stop tightening. But if these trends continue, markets will start to push the Fed, and particularly Chair Powell, to rethink the idea of continued hikes next year.”

Average hourly earnings rose 0.4% over the month, higher than the prior reading and Wall Street expectations. On an annual basis, wages held at 4.7%, on par with estimates.


Although job vacancies have moved below their highs and the pace of job gains has slowed from earlier in the year, the labour market continues to be out of balance, with demand substantially exceeding the supply of available workers,” Powell said on Wednesday when addressing reporters after the FOMC delivered another 0.75% rate increase.

The labour force participation rate in ticked down slightly last month to 62.2% from 62.3% the prior month. At the industry level, the largest gains were seen across health care, professional and technical services, and manufacturing, the Labour Department said in its release.

Jobs in health care rose by 53,000 after last month’s gain brought the industry back to its February 2020 level. Employment in the sector has increased by an average of 47,000 per month so far in 2022, compared to 9,000 per month last year.

The manufacturing sector added 32,000 jobs in October, with gains concentrated across durable goods industries. The industry has seen an average increase of 37,000 jobs per month this year so far, higher than 2021’s monthly average of 30,000.

Leisure and hospitality, one of the sectors hardest hit by the pandemic, continued its recovery, with 35,000 jobs added during the month. However, the gain was only a fraction of September’s 83,000 increase and the monthly average for the industry this year of 78,000 jobs.

Although overall hiring has held up in the sector and the broader labour market has completed its COVID recovery, employment in leisure and hospitality remains 1.1 million jobs, or 6.5% below its February 2020, pre-pandemic level.

Here are the highlights from the Labour Department’s monthly jobs report released Friday, compared to consensus estimates from Bloomberg:

Non-farm payrolls: +261,000 vs. +195,000 expected

Unemployment rate: 3.7% vs. 3.6% expected

Average hourly earnings, month-over-month: +0.4% vs. +0.3% expected

Average hourly earnings, year-over-year: +4.7% vs. +4.7% expected