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Unemployment Ticks Up. October Job Gains Fall Short
Employees now refuse to quit. A sign of changing labor perceptions.
The U.S. economy experienced a larger-than-expected slowdown in job creation during October, according to a report from the Labor Department. The economy added 150,000 jobs, falling short of economists' expectations of 180,000 jobs. Furthermore, revisions to previous months' data showed that job gains were lower than initially reported. September's job gains were revised downward from 336,000 to 297,000. August's gains were lowered from 227,000 to 165,000. The revisions reduced the combined employment gain for these two months by 101,000. The unemployment rate increased from 3.8% to 3.9% in October.
A closer look at the employment numbers reveals that excluding government jobs, employment only rose by 99,000. Public-sector jobs saw an increase of 51,000 in October. Based on the Economic Policy Institute we are still well below our pre-pandemic job growth using 12 month average proceeding the pandemic.
The slowdown in job growth has sparked a rally in government bonds, as investors believe that the slowdown in the labor market makes it less likely for the Fed to raise interest rates in the coming months. The stock market also responded positively to the jobs report, putting the stock market index on track for its best week in a year. Many market analysts believe that this jobs report is convincing skeptics that the rate hike cycle is coming to an end. They argue that the economy is cooling and that there is a disinflationary trend, which means that the Fed does not need to raise rates again.
Following the release of the data, futures markets indicate that investors now expect a rate cut in June next year, compared to their previous expectations of a cut in July. Traders have also pulled back from any expectation of a further rate rise this year. The yield on the two-year U.S. Treasury note, which moves inversely to price and tracks interest rate expectations, fell to a two-month low of 4.85%.
Workers Cling to Jobs Amid Economic Uncertainty
There has been a significant shift in the labor market as fewer employees are voluntarily leaving their jobs. This unexpected trend is attributed to uncertain macroeconomic conditions and the perception that finding new roles externally may be more challenging. In a survey released by Adecco, 73% of workers this year stated that they planned to stay at their jobs, compared to 61% last year.
Nationally, the quits rate, which measures the number of resignations as a share of total employment, remained at 2.3% in September for the third consecutive month. This is a decline from the peak of 3% in April 2022. This supports the notion that nationally employers are seeing attrition rates drop.
While the decrease in job-hopping and rising salaries may seem like a positive development for employers, it has presented new challenges. Hiring has slowed down significantly, with U.S. employers adding only half as many jobs in October compared to September. Some companies, like Morgan Stanley and Wells Fargo, have even had to resort to layoffs due to low attrition rates within their organizations.
The unexpected low attrition rates have led companies to revise their hiring plans and budgets. Bank of America initially planned to reduce its headcount through slower hiring and attrition. However, as fewer employees left the bank, the company had to work harder to manage its headcount down. Attrition within the company reached a record low in 2023, resulting in a workforce reduction of approximately 6,000 full-time employees since January.
According to the Bureau of Labor Statistics Job Openings and Labor Turnover Survey (JOLTS), the number of US job openings unexpectedly rose to 9.6 million, exceeding economists' median estimate of 9.4 million. The ratio of job openings to unemployed individuals remained at 1.5, matching the lowest level in about two years. At its peak in 2022, the ratio was 2 to 1. While the government report showed a decline in hiring since the beginning of the year, the JOLTS report indicated that hiring remained relatively flat. There are some concerns with the accuracy of the JOLTS report due to the survey's low response rate and reports of employers posting job openings they do not actually intend to fill.
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