Employers added 263,000 jobs on a seasonally adjusted basis, the Labor Department said Friday, a decline from 315,000 in August. The number was the lowest since April 2021 but still strong by pre-pandemic standards. The unemployment rate fell to 3.5%, equaling a five-decade low.
“If I had just woken up from a really long nap and seen these numbers, I would conclude that we still have one of the strongest job markets that we’ve ever enjoyed,” said Carl Tannenbaum, chief economist at Northern Trust.
Officials at the Federal Reserve have been keeping a close eye on hiring and wages as they proceed with a series of rate increases meant to combat inflation. The job data indicates that, for now, they are doing so without tipping the economy into a recession that would throw millions out of work.
But it also increases the prospect that the effort to subdue price increases will be more prolonged. For investors, that came as bad news, since higher interest rates raise costs for companies and weigh on stock prices.
The S&P 500 recorded its worst one-day performance since mid-September, falling 2.8% and eroding gains from earlier in the week.
Fed officials have signaled in speeches this week that they remain resolute in trying to wrestle inflation lower, and that they are waiting for clear evidence that the economy is headed back toward price stability before they pull back.
Wage growth has subsided somewhat, at least compared with the trend a year ago. Average hourly earnings climbed 5% from a year earlier, roughly matching economists’ expectations but slowing down slightly from the prior annual reading.
Although the rise in wages is not keeping up with inflation, it has remained fast enough that Fed officials see it as a sign that they will need to take further steps to cool off the economy, since employers are likely to continue raising prices to cover increasing labor costs.
Beyond the central bank, the report had political repercussions. With the midterm elections just weeks away, both parties seized on the data to make the case that they are the best stewards of the economy.
In a speech before factory workers at a Volvo plant in Hagerstown, Maryland, President Joe Biden said the numbers were a sign that the economy was making a transition to stable growth.
“Our job market continues to show resilience as we navigate through this economic transition,” he said. “The pace of job growth is cooling while still powering our recovery forward.”
Republicans, in turn, pounced on indications that the job market was cooling to assail Biden for economic mismanagement.
“The economy is shrinking, inflation is raging, and job growth is slowing,” said Rep. Kevin
of Texas, the top Republican on the House Ways and Means Committee.
Beyond the partisan spin, it appears that after months of vigorous hiring that defied economists’ expectations, the highflying labor market is coming back down to earth.
There were some notable bright spots in the September report. Health care employers and leisure and hospitality businesses, which were both battered by the pandemic, continued to add jobs. Construction did likewise, despite a slowdown in the housing market.
But deeper cracks have started to show in other industries, as consumers pull back on spending in the face of financial instability. Hiring in the retail industry was basically flat, and jobs in trucking — a pandemic winner — dropped by more than 11,000.
In a move broadly consistent with this pullback, Amazon recently announced a slowdown in hiring, and said this week that it planned to hire 150,000 workers this holiday season, on a par with last year.
There are other signs that the gap is narrowing between the supply of labor and the demand. The number of job openings decreased in August to 10.1 million, from 11.2 million in July. Filings for unemployment benefits last week rose modestly.
From the Fed’s perspective, “we’ve had some incremental positive developments in the labor market — job openings are declining, wage growth seems to be slowing a little bit, at the margin,” said Aneta Markowska, chief financial economist at the investment bank Jefferies. “It’s a baby step in the right direction.”
The labor force participation rate — a measure of how many people are working or actively looking for jobs — ticked down slightly in September, to 62.3%, from 62.4% in August, though it was in line with the level it has hovered around for most of 2022.
A less frenzied job market has been welcome relief for employers after months of intense competition for labor drove wages up precipitously and left many businesses grumbling that they could not fill open positions.
Vision Hospitality Group, a hotel ownership and management company based in Chattanooga, Tennessee, has struggled to hire workers despite raising wages 30% since 2019 and offering incentives like daily pay for employees, said Mitch Patel, the company’s founder and CEO.
To compensate for the persistent labor shortage, the company, which has about 1,500 employees, has relied more on temporary contract workers than it had in the past. It has also learned how to operate more efficiently, allowing guests to check in on their mobile phones, for instance, and providing housekeeping by request.
But Patel said he had noticed that hiring had gotten a little easier more recently, and that turnover was lower. Rather than operating at 70% of full staffing, he said, the company is at more like 90%.
“It’s still challenging but it is getting better,” he said.
Yet what may be good for the economy writ large will inevitably hurt some workers, particularly those in low-wage jobs, who have been able to leverage the extraordinarily tight labor market in the pandemic era to demand higher pay, better benefits and more flexible schedules. Even if the economy avoids a recession, workers could still see their advantage — and their standard of living — slip away.
“A slowdown could feel uncomfortable for some people,” said Julia Pollak, chief economist at ZipRecruiter. “If things go back to normal, that will be pretty gloomy for them. But it doesn’t mean that we’re in a recession — it just means we’re back in that normal labor market environment where job-seeking is difficult.”
Still, some economists are forecasting that the economic slowdown will become more pronounced in the coming months. The possibility of job losses looms large.
“Going forward, we definitely expect a more significant moderation in hiring,” said Nancy Vanden Houten, an economist at Oxford Economics. “We think that corporate profits are going to weaken quite a bit as the economy slows, and that will lead to some pullback in hiring and ultimately some layoffs.”
Already, some companies are tempering their hiring ambitions.
Jeff Ohlemacher, the owner and CEO of EMC Precision, which manufactures precision machined parts such as shafts for blenders and shock absorbers for amusement park rides, said he had increased his company’s head count this year to 143 from 105 because demand from customers was so strong.
“Up until recently we pretty much, if somebody had a high score on a mechanical aptitude test and it was a good cultural fit, we would hire them,” said Ohlemacher, whose company has plants in Elyria, Ohio, and Sheridan, Indiana.
But while business conditions are still “extremely good,” he said he was not looking to expand the company further at this point, estimating that he would bring on only 10 employees for the remainder of the year, to account for attrition and any new business.
“We think right now we’re at full employment,” he said. “And with the slowing of growth that we’ve seen, we think we’re about right-sized.”