The Zhitong Finance App notes that the number of non-farm payrolls in the US may have rebounded in October, but wage growth is expected to slow below 3.0%, the first time in nearly five and a half years. This will reinforce the view that the labor market is not a source of inflation. The high-profile employment report to be released by the Department of Labor on Friday is also expected to show that the unemployment rate remained unchanged at 4.2% last month, and is likely to have fallen to 4.1%. The historically low number of layoffs and the recent surge in job vacancies have raised the possibility that the labor market will tighten.
But economists and Federal Reserve officials insist that the labor market poses no risk of inflation. Some economists believe that in the context of tightening immigration policies and the wave of retirements, the shrinking labor supply is the main reason for the relatively low unemployment rate.
James Knightley, chief international economist at Dutch International Group, said: “Our job market is not generating wage growth in any meaningful way. This should indeed help curb price pressure in the medium term, because the biggest cost input for US companies is labor. Weak wage growth should give the Federal Reserve some confidence that medium-term inflation will continue to fall back towards its target.”
A survey of economists predicts that the number of people employed in non-farm payrolls may increase by 65,000 last month. Previously, due to calendar factors affecting the late Labor Day holiday, it only increased by 29,000 in September. The forecast range is 35,000 to 125,000.
The October employment data may also fall short of expectations. Some economists point out that the seasonal factors used by the government to remove seasonal fluctuations from the data were bad for the month.
Since this year, the number of employed people has increased by an average of 68,000 per month. Economists say the economy needs to create at least 40,000 jobs every month to keep up with the growing working-age population. Due to the reduction in the size of the workforce, the so-called break-even ratio has declined from about 150,000 in 2024.
Employment growth lags behind economic growth. Driven by strong consumer spending and large corporate investment in artificial intelligence, the US GDP grew by 3.4% annualized in the third quarter. Economists say employers may be overhiring after the COVID-19 pandemic, and some companies may be uncertain about their employment needs when integrating AI into operations.
They said that the war between the US and Israel and Iran has boosted energy prices, and the resulting uncertainty has also made employers hesitant to increase manpower. Limited opportunities make job hopping more difficult, thereby curbing wage growth.
Limited opportunities for job seekers
Young people, recent college graduates, and some unemployed people are just as difficult to find work.
Disappointment with the economy and anger over the Middle East conflict, which has continued for nine months, caused President Trump's Republican Party to lose control of Congress, and the Democratic Party performed strongly in this week's midterm elections.
Gregory Dacko, chief economist at EY-Partenon, said: “For employees who already have jobs, the sense of job security is still high, and opportunities for job seekers and job changers are becoming more limited. “More broadly, the economy has turned to 'light employment expansion', as investment favors technology, and companies are increasingly reliant on existing labor to meet steady demand, which is reflected in more solid working hours.”
The average hourly wage is expected to increase by 0.3% in October and slightly increase by 0.1% in September. Wages are expected to rise 2.9% in the 12 months to October. This will be the first time since May 2021 that the year-on-year increase was less than 3%, a decrease from 3.0% in September.
Although this will highlight the anti-inflationary effects of the labor market, it will also indicate that household income is being further eroded, and household income is already under pressure from inflation.
Household disposable income, adjusted for inflation and taxes, declined in September.
Economists expect consumer spending and the overall economy to slow in the fourth quarter and beyond 2027. They still expect the Federal Reserve to raise interest rates in December, but some believe that moderate wage pressure may limit the number of interest rate hikes next year. The Federal Reserve kept the benchmark overnight interest rate in the range of 3.75% to 4.00% last week, while admitting that inflation is “still too high.”
The October consumer inflation report to be released next Tuesday may provide more clues about the direction of monetary policy in early 2027.
Stephen Stanley, chief US economist at Santander's US Capital Markets, said, “The labor market is neither hot nor too cold. So as far as labor conditions are concerned, the Federal Reserve has nothing to worry about.”