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Bottom Line:
Any way you look at it, the labor market remains solid. Payrolls continued on a strong trajectory in October, adding 165k jobs. A better gauge of labor market health is the unemployment rate, which ticked down to 4.1% even as participation edged higher to 61.9% from 61.8%. Workers re-entering the labor force are finding jobs quickly — those transitioning from “out of the labor force” into employment outnumbered those entering unemployment by 3-to-1. By almost every measure, the labor market looks exceedingly healthy despite persistent inflation. There is little meaningful evidence of margin-preserving layoffs.
Seasonal hiring ahead of the holidays helped, with strong gains in transport and warehousing. But the majority of job gains came in the services sector, with notable gains in professional and business services. Health care is losing its title as the primary driver of job growth (it’s led growth only once in the past four months), meaning the strength in the labor market continues to broaden.
Monthly wage growth accelerated on the back of an upward revision to September, a tailwind for consumers who are struggling to keep up with inflation. Ultimately, what this means is that the Fed should remain solely focused on the upside risks to inflation, as this report removes the ability for the Fed to point to labor market weakness to justify another hold in December. Indeed, our call remains that they will hike two more times but demand driven inflation risks are growing.
About the authors:
Mike Reid is Head of US Economics at RBC. He is responsible for generating RBC’s U.S. economic outlook, providing commentary on macro indicators, and producing written analysis around the economic backdrop.
Carrie Freestone is a Senior US Economist at RBC. She is responsible for generating RBC’s US economic forecasts across GDP, employment, and inflation, and providing macro commentary through publications, presentations, and the media.
Imri Haggin is an US Economist at RBC, where he focuses on thematic research. His prior work has centered on consumer credit dynamics and treasury modeling, with an emphasis on leveraging data to understand behavior.
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