Despite strong October employment report, workers still hesitant
The U.S. labor market snapped back from a dismal report last month as the economy added 531,000 jobs in October. The Labor Department also reported that the unemployment rate fell to 4.6%, its lowest level since March 2020. Both metrics came in better than economists’ estimates of 450,000 and 4.7%, respectively.
According to the report, private payrolls added 604,000, while government payrolls declined by 73,000. October numbers represent a solid pickup versus the September jobs report, which saw gains of only 312,000 new jobs.
Labor force is still down
To be sure, today’s report is vastly improved from last month’s, yet it still wasn’t the blockbuster report many economists have been looking for in light of sharp declines in COVID cases and the expiration of pandemic unemployment benefits. Markets continue to grapple with hesitancy about returning to the workforce. As such, the labor force participation rate, the percentage of workers willing to work, is failing to recover to pre-pandemic levels (see chart below). At +104,000, the rise in workforce participation isn’t even enough to keep up with population growth.
As a result, Average Hourly Earnings were up +.4% MOM as employers struggled to fill open positions and were forced to pay higher wages. Those wage increases, however, fell short of rises in broader inflation.
One of the Fed’s mandates is to “promote effectively the goals of stable prices.” The Fed has been under mounting pressure to remove emergency pandemic monetary support as prices soared over the past 18 months. Earlier this week, the Fed announced it would begin tapering asset purchases to the tune of $15 billion per month to be split between its purchases of treasuries and mortgage-backed securities. The Fed is expected to wind down its asset purchase program before ultimately hiking interest rates in late-2022.
Dovish effect on market
I would categorize today’s market reaction as dovish, meaning investors believe the Fed may have to play a more active role in the financial markets for an extended period. Clearly, the failure of nearly 3 million people to return to the workforce and the associated issues with rising prices and supply chains are weighing heavily on investors. Stocks and bonds are both rallying, something we’ve seen when we expect more Fed accommodation. The DOW is up over 300 points, and interest rates are a few basis points lower since the employment report dropped.
Jeremy Collett is Guaranteed Rate’s Executive Director of Capital Markets. Market Updates are designed to provide readers with a high-level yet insightful view of how economic news, events and trends affect mortgage rates and the homebuying process.
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