The economy added 261,000 jobs in October even as recession fears, interest rates rose

• The unemployment rate rose from 3.5% to 3.7%, the Labor Department said Friday.
• Economists had estimated that 190,000 jobs were added last month.
• Employers added 261,000 jobs despite high inflation, rising interest rates and growing recession fears.

Hiring stayed strong in October as employers added 261,000 jobs despite high inflation, rising interest rates and growing recession fears.

The unemployment rate rose from 3.5% to 3.7%, the Labor Department said Friday.

Economists had estimated that 190,000 jobs were added last month. The actual gain was the smallest since December 2020. 

Yet in another sign of a vibrant labor market, job gains for August and September were revised up by a net 29,000, with September’s advance now 315,000, up from 263,000.

In recent months, job growth has downshifted from a robust average monthly pace of more than 400,000 for most of this year to about 290,000 the past three months but stayed resilient. Persistent worker shortages have led companies to avoid layoffs on fears they won’t be able to fill openings when the economy bounces back.

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Initial jobless claims, a gauge of layoffs, totaled a historically low 217,000 last week.

Health care led October’s job gains with 53,000. Professional and business services added 39,000; leisure and hospitality, 35,000, with hotels accounting for the bulk of the new positions; and manufacturing, 32,000.

Federal, state and local governments added 28,000 jobs.

“The economy seems to be on an even keel in this jobs report,” says Jane Oates, president of WorkingNation, a nonprofit that raises awareness about the challenges facing U.S. workers and former head of the Labor Department’s employment and training division.

Stocks react to jobs report 

Stocks were moving higher after the better-than-expected jobs report until around noon when the Dow, S&P 500 and Nasdaq all turned negative.

This comes on the heels of Wednesday’s heightened volatility resulting from the Fed’s decision to raise interest rates by an additional 75 basis points. Meanwhile, the Dow experienced its best October on record with its 14% gain. That was also its best month since 1976.

What is the labor force participation rate?

In a hint that worker shortages could persist, the share of adults working or job-hunting edged down to 62.2%, leaving it well below the pre-pandemic level of 63.4%. The labor force participation rate generally had been rising since 2020 as workers returned to a hot labor market after caring for children or staying idle because of COVID-19 fears.

But that share has roughly held steady this year, signaling that most Americans intent on returning to the workforce have done so. That could maintain upward pressure on wages as employers jostle for a more limited pool of workers.

Last month, average hourly wages rose 12 cents to $32.58, lowering the annual increase from 5% in August to a still healthy 4.7%.

The prospect of continuing labor shortages and elevated wage growth will likely mean more hefty interest rate hikes by a Federal Reserve determined to tame inflation stuck just below a 40-year high at 8.2%, economists say.

“This report is a green light for more Fed rate hikes and higher interest rates,” says Jason Schenker, president of Prestige Economics.

Are we in a recession right now?

The Fed’s moves increasingly are expected to discourage borrowing and economic activity, and top economists are now forecasting a recession in 2023. As a result, many businesses are dialing back hiring plans.

Identity, a 33-employee marketing and public relations firm based in Birmingham, Michigan, has added three employees this year and, with sales up 10%, was set to bring on a couple more.

But company President Mark Winter is growing cautious.

“We haven’t seen a slowdown in business demand, but we know it’s coming,”  Winter says.