Hiring slowed sharply in October as employers added 150,000 jobs, signaling that high interest rates and inflation may be taking a widening toll on payroll growth.

The auto workers strike also dampened employment gains last month as manufacturing lost 35,000 jobs.

The unemployment rate rose from 3.8% to 3.9%, the Labor Department said Friday, the highest level since January 2022.  

Economists surveyed by Bloomberg had estimated that 180,000 jobs were added last month.

Another possible sign of a weakening labor market: Job gains for August and September were revised down by a combined 101,000, depicting a less robust picture of hiring in late summer than previously thought.

Are US wages increasing?

Average hourly earnings rose 7 cents to $34, nudging down the yearly increase to 4.1% from 4.2%. That should be welcomed by a Federal Reserve seeking to tamp down pay increases that are feeding into inflation. Fed officials would like to see wage growth ease to 3.5% to align with their 2% overall inflation goal. Wage growth topped 5% last year amid severe COVID-related labor shortages.

How is the Dow reacting?

Investors cheered the report on the hope that milder pay increases and a cooling job market would allow the Fed to continue to hold its key interest rate steady after hiking it aggressively from March 2022 to July 2023.

The Dow Jones industrial average rose 222.24 points, or 0.7%, to end at 34,061 on Friday while the S&P 500 index jumped 0.9% to finish at 4,358.

“The overall weakening in employment demand and wage growth supports our view that the Fed is done raising rates for this cycle," Kathy Bostjancic, chief economist of Nationwide, wrote in a note to clients. "Moreover, it supports our forecast for a mild recession to unfold in the first half of 2024.”

10-year Treasury yield

The 10-year Treasury yield, which topped 5% recently as inflation worries intensified, fell 11 percentage points to end at 4.56%.

Which industries need workers the most?

Besides the strike-related job losses in manufacturing, hiring was subdued across a broad range of industries, with the private sector adding just 99,000 jobs. Health care led the payroll gains with 58,000. Construction added 23,000; leisure and hospitality, 19,000; and professional and business services, 15,000.

Transportation and warehousing, information and financial activities all shed jobs,

Total job gains were pushed up to a more solid figure by 51,000 gains in federal, state and local governments, whose tallies are often volatile and don’t necessarily reflect the health of the economy.

What is the labor force participation rate?

The share of Americans working or looking for jobs dipped to 62.7% after reaching 62.8% in August and September, the highest since early 2020, before the pandemic began.

This year, Americans sidelined by COVID health concerns or child care duties have streamed back into a favorable job market, joining a surge in immigrants. The larger pool of workers has helped tamp down wage growth since employers don't need to boost starting pay as sharply to attracxt job candidates. But October’s decline in participation raises questions about whether that trend has peaked as baby boomers continue to retire droves.

Is the US job market slowing down?

The job market was expected to be impacted by several one-time factors in October. The United Auto Workers strike was set to reduce employment by about 30,000 workers, Goldman Sachs said before the report was released. Yet the tentative resolution of the walkout should mean a similar bump in employment for November, the research firm said.

And the deal reached in the Hollywood writers’ strike could have translated into an October rise in employment in the movie and TV industry, says Diane Swonk, chief economist at KPMG.

Meanwhile, lingering COVID-related labor shortages probably spurred industries such as retail to pull forward holiday hiring, Goldman says. Yet that could mean less hiring this month.

All told, such episodes reveal little about the underlying health of the job market.

Through the first eight months of the year, job gains slowed to a still solid average pace of about 200,000 a month this year, half of last year’s clip, now that the millions of jobs lost in the pandemic have been recovered.

But the economy and labor market have proved remarkably resilient lately. More than 300,000 jobs were added in September and the economy grew at a sizzling 4.9% annual rate in the third quarter on strong consumer spending.

Although the Federal Reserve’s aggressive interest rate hikes and inflation have had some impact, the worker shortages have made employers reluctant to lay off staffers and kept average yearly wage growth above 4%, fueling consumption.

Forecasters expect economic activity, job gains and pay increases to slow more dramatically next year as higher borrowing costs further squeeze households and businesses, and more Americans deplete their pandemic-related savings. Nearly half of economists are still predicting a mild recession within the next 12 months.