Job growth remained stubbornly robust in October despite higher interest rates, defying policymakers’ efforts to dampen the labor market and curb the fastest inflation in generations.
Employers added 261,000 jobs last month on a seasonally adjusted basis, the Labor Department said Friday. That was down from 315,000 in September. The unemployment rate rose to 3.7 percent.
“All in all, the job market is still hot,” said Daniel Zhao, an economist at the career site Glassdoor. “There’s still some cushion before we actually hit the ground.”
Economists had expected a gain of 200,000 jobs.
The report offered a final glimpse of the economy before the midterm elections next week, and it will almost certainly make its way into both parties’ closing pitches to voters.
Officials at the Federal Reserve have also been closely watching the labor market to assess whether their aggressive efforts to rein in inflation by raising interest rates are working. They have been eager to see evidence that the labor market is softening and wage growth is subsiding, but not so much that the economy tumbles into a recession.
On Wednesday, the Fed raised interest rates another three-quarters of a percentage point on and signaled plans to keep raising them even as it suggested that it might slow the pace of increases. Their next rate decision is scheduled for Dec. 14.
Economists have been expecting the labor market to cool as higher interest rates make it more difficult for businesses to grow. So far, however, hiring has been remarkably resilient even as other aspects of the economy, like the housing market, have slumped.
The employment figures on Friday make clear that job growth is slowing, albeit very gradually. The question is whether such measured slackening will lead to meaningfully lower inflation, a sought-after path that policymakers refer to as a soft landing.
Although wage growth has moderated slightly, workers are still seeing their pay rise at a level that the Fed has said is inconsistent with its long-term inflation goals. The share of adults participating in the labor force declined a little, suggesting that employers are not seeing a rush of new workers coming to fill available jobs. Neither measures offer the Fed much comfort.
“What I see in this is the imprint of beginning weakness,” said Diane Swonk, the chief economist at KPMG. “But it’s not enough to derail the Fed.”
There have been other recent signs that the labor market remains exceedingly tight. Job openings, after falling significantly in August, rose again in September to 10.7 million. That increase meant there were roughly 1.9 job openings for every unemployed worker. The number of people who quit their jobs — typically a sign that workers are confident they will find better ones — ticked down to 4.1 million but remained high. Layoffs overall have stayed low.