Employment growth in the USA has fallen sharply. At the same time, the unemployment rate also rose slightly. A further increase in interest rates by the US Federal Reserve is becoming increasingly unlikely.
The hot US labor market has cooled down and the financial markets have allayed fears of rising key interest rates. Just 150,000 new non-farm jobs were added in October, according to the government’s jobs report today. Economists surveyed by the Reuters news agency had expected an increase of 180,000. Meanwhile, the unemployment rate rose slightly and wage developments weakened.
Strike distorts the image somewhat
In addition, the increase in employment in the previous two months was revised downwards by a total of 101,000 jobs. In September it was still at 297,000. The numbers were somewhat distorted in October by the UAW auto union strike. According to Commerzbank estimates, the strikes have reduced the number of employees by 30,000. However, the increase in employment would still have been well below 200,000.
The separately determined unemployment rate climbed by 0.1 percentage points to 3.9 percent. On average, economists had expected an unchanged rate of 3.8 percent. Wage growth also weakened in October. Average hourly wages increased by 0.2 percent compared to the previous month. Analysts had expected an increase of 0.3 percent on average. In September, wages rose by a revised 0.3 percent. The increase also weakened in October compared to the previous year.
The US central bank, the Federal Reserve, is currently combating high inflation with a tight monetary policy line and, among other things, wants to ensure that the hot labor market cools down. After all, rising wages also drive price developments. The Fed recently left the key interest rate unchanged at a range of 5.25 to 5.50 percent, but left the door open for another increase.
“Skidmarks” caused by monetary policy
The weaker wage development is now a step by the Fed towards achieving the two percent inflation target. Therefore, traders on the futures markets consider the probability of an interest rate increase by January to be very low: it is estimated at less than 20 percent. At the same time, interest rate cuts could be getting closer – possibly as early as May instead of June as previously assumed.
“Although job growth continues to be decent, the tighter monetary policy is leaving more and more signs of a slowdown,” said Commerzbank experts Christoph Balz and Bernd Weidensteiner. “Unless there is a nasty surprise in the inflation data due before the December meeting, the Fed will not raise interest rates at the last meeting in 2023.” According to the two economists, the interest rate peak has already been reached.
There was also confidence in the financial markets that interest rates would fall. The dollar came under pressure after data on all other major currencies. In return, the euro climbed above $1.07. US bond prices rose noticeably. The European stock markets reacted with price gains and Wall Street also started in positive territory.