Unemployment rate rises to 3.9%, highest since start of 2022; Investors viewed report as evidence the Fed won’t raise rates.


The numbers: The U.S. added a modest 150,000 new jobs in October in a sign of a cooling demand for labor, as higher interest rates take a bite out of the economy.

Economists polled by the Wall Street Journal had forecast 170,000 jobs. Employment likely would have grown by about 180,000 if not for the auto strike.

Still, the pace of job creation slowed sharply from a downwardly revised 297,000 increase in September that now looks more like an aberration.

The unemployment rate, meanwhile, rose a tick to 3.9%, the government said Friday. That’s the highest level since the beginning of 2022.

The Federal Reserve is betting the labor market will continue to soften and help reduce the upward pressure on labor costs.

The Fed sharply raised U.S. interest rates from early 2022 to the summer of 2023 to try to slow the economy and tame inflation, but it’s been on hold since July. The latest jobs report might give the Fed more leeway to stay put.

Labor costs rose slightly in October. Average hourly wages increased 0.2%.

The rise in pay over the past year slowed again to a nearly 2 1/2-year low of 4.1% from 4.3% in the prior month. While that’s still too high for the Fed, it’s trending in the right direction.

Wages were rising a little over 3% a year before the spike in inflation that followed the pandemic.

Big picture: The labor market is still quite sturdy, but businesses are not hiring as many people as they were a year ago.

Part of the reason is because workers are hard to find owing to the worst labor shortage since World War Two. But lots of companies are suffering from slower sales, especially in interest-rate sensitive industries such as housing and manufacturing.

So long as most people are working and spending money, the U.S. is likely to avoid a recession. But if business sales and profits slow much further, companies are more likely to lay off workers and put the current economic expansion at risk.

Market reaction: The Dow Jones Industrial Average DJIA, +1.70% and S&P 500 SPX were set to open higher in Friday trades.

The yield on the 10-year Treasury dropped to 4.56%. Investors viewed the soft jobs report as further evidence the Fed won’t raise rates again.