US jobs growth solid but slowing amid inflation fight

• Posted on November 7, 2022November 7, 2022
• by Nana Kwesi Coomson
• Comment

Jobs growth in the US is continuing at a solid, though slowing pace, despite rising prices and higher borrowing costs weighing on the economy.

Employers added 261,000 jobs in October, while the unemployment rate rose slightly to 3.7%, the US Labor Department said on Friday.

The news comes as the economy remains a top concern for voters ahead of next week’s midterm elections.

Despite a strong labour market, soaring costs have hit public confidence.

Consumer prices are rising at a pace not seen since the early 1980s. Inflation, which measures how the cost of living changes over time, is up 8.2% over the 12 months to September.

While the rate has slowed since June as motor fuel prices fall, the cost of groceries, medical bills and many other items continues to climb.

The issue has weighed on Democrats, who were already fighting an uphill battle to maintain their slim hold of Congress.

“People are depressed and often people vote with their pocketbooks,” said Beth Ann Bovino, chief US economist at S&P Global Ratings. “Inflation is almost everywhere. People are squeezed at the checkout stand, they’re squeezed with their rental payments, when they try to buy a home.”

The White House has made the case that some slowdown is expected – and healthy – as the economy returns to normal after the surge in activity when it reopened from lockdowns.

And for now, government figures suggest there has only been mild softening in the labour market.

Although the unemployment rate ticked up from 3.5% in September, the 261,000 jobs added last month was far better than economists had expected, with healthcare and manufacturing firms helping to drive the hiring.

Wage gains were also strong, despite not keeping pace with inflation, with average hourly pay up 4.7% over the past year.

“We’re going to do what it takes to bring inflation down,” President Joe Biden said Friday, responding to the latest figures. “But as long as I’m president, I’m not going to accept an argument that the problem is that too many Americans are finding good jobs. “

Job losses ahead?

With prices still rising sharply, however, analysts say they expect to see job losses increase next year, as consumers start to curb their spending and the central bank raises interest rates to rein in rising costs.

Since March, when interest rates were hovering near zero, the Federal Reserve has hiked borrowing costs six times, moves that have rippled out to the public in the form of sharply higher rates for home, car and business loans.

By making borrowing more expensive, the bank hopes to cool demand among businesses and households, in turn easing the pressures pushing up prices.

“The US economy continues to create far more jobs than population growth can accommodate, putting more upward pressure on wages and prices,” said Ron Temple, head of US Equities at Lazard Asset Management.

“The Fed has attacked the inflation challenge aggressively, but will be forced to remain on the offensive as long as the labour markets remain resilient.”

Some sectors, such as housing and technology, have been hit hard already and anecdotal reports of job cuts and hiring freezes have increased, as firms prepare for a downturn.

On Thursday, payments firm Stripe on Thursday said it was axing 14% of its workforce, while Lyft, a taxi firm that is Uber’s main rival, said it was cutting 700 jobs.

Elon Musk told Twitter staff the company would impose widespread job cuts, and Amazon also said it would halt hiring for corporate positions across the company.

“We think that 2022 represents the beginning of a different economic climate,” Stripe executives wrote in an email to staff. “Our business is fundamentally well-positioned to weather harsh circumstances… however, we do need to match the pace of our investments with the realities around us.”

But the ongoing strength of the labour market has raised hopes that the US may be able to avoid a severe recession.

Dane Brecher helps to run Plastic Crafts, a 40-person family-owned manufacturing company in New York that his grandfather started in 1934.

The business has felt the effects of higher interest rates, opting to pay cash when it recently bought new machinery, instead of borrowing as it might have a few months ago.

But it does not have major debts and sales have been steady. While there may be some signs of slowdown, he said he is not worried about a serious downturn.

“If interest rates were a little less, I’m sure we’d be looking to expand more,” he said. “We’re just going to stay the course… we’re in a good place. Unfortunately, I don’t know if the rest of the country is, but we’re OK.”

-BBC