After a hot summer, hiring cools in September as employers add 263,000 jobs
Updated October 7, 2022 at 10:23 AM ET
Hiring slowed in September, in a sign the red-hot job market may be cooling.
The Labor Department reported Friday that U.S. employers added 263,000 jobs last month — a modest decrease from the 315,000 jobs added in August. The unemployment rate dipped to 3.5%, matching a half-century low.
For months, job openings have far outnumbered unemployed workers, driving up wages. The Federal Reserve is eager to see a more balanced job market, as it tries to curb uncomfortably high inflation.
The Fed got some encouraging news earlier in the week, when the Labor Department reported that job vacancies had declined by 10% in August, meaning employers are not as desperate to find workers as a few months ago. At the same time, the pace of hiring held fairly steady.
"I think this is good news for the Federal Reserve," said Nela Richardson, chief economist at the payroll processing firm ADP. "You are seeing some softening in early-stage demand [for workers] but still continuation in hiring."
Manufacturers added 22,000 jobs in September, Friday's report showed — down from 27,000 in August and 37,000 in July. A survey of factory managers released earlier this week pointed to a less frantic need for additional employees.
More than half the factory managers polled said demand for their products appears to be softening, making them reluctant to hire additional workers.
"It's really hard to hire somebody this month and three, four months from now let them go. So people are being a lot more cautious," said Tim Fiore, who conducts the survey for the Institute for Supply Management.
"It's not layoffs, primarily," Fiore said. "It's [hiring] freezes. And when people are quitting, they're not being replaced as quickly. So that's a clear change from where we've been over the last year-and-a-half, two years."
Manufacturing represents a small slice of the overall workforce, however. A similar ISM survey of service-sector businesses found no slowdown in hiring.
Industries with the biggest job gains last month included bars and restaurants (60,000) and health care (60,000). Government employment fell by 25,000.
Construction companies continued to hire workers, even though homebuilding activity has slowed in the face of rising mortgage rates. The construction industry added 19,000 jobs in September — up from 11,000 the month before.
Looking to see how many workers come back to the job market
The U.S. has now replaced all of the jobs that were lost in the early months of the pandemic. Continued job gains will depend in part on the number of workers who are available.
"The more people who come back to the labor market, the more likely we'll see some loosening in hiring conditions and a continuation of these steady gains," said Richardson.
August saw a big influx of new and returning workers, as nearly 800,000 people joined or rejoined the labor force. That trend did not continue into September, however. Friday's report shows the workforce shrank last month by 57,000, which is why the unemployment rate declined.
"If the health impact of COVID-19 continues to diminish, I am optimistic that more workers will reenter the labor force," Fed governor Lisa Cook said Thursday. "But there is a risk that labor supply remains below its pre-pandemic trend."
Shortages of both workers and critical supplies have made it hard for businesses to keep pace with strong demand for goods and services. As a result, prices have soared. The Fed initially thought those bottlenecks would ease on their own. But despite some encouraging signs — like a drop in lumber and used car prices — inflation remains stubbornly high. Prices in August were up 8.3% from a year ago.
Since March, the Fed has been aggressively raising interest rates, in an effort to tamp down demand and bring prices under control.
Cook and her colleagues on the Fed's governing board have made it clear that interest rates will remain elevated until there's convincing evidence that prices are leveling off.
"Inflation is too high, it must come down, and we will keep at it until the job is done," Cook said Thursday, in her first public speech as a central bank policymaker.
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A MARTINEZ, HOST:
After a hot summer in the U.S. job market, there are signs of a cooling trend. The Labor Department said this morning that U.S. employers added 263,000 jobs last month. That's a modest slowdown from a month before, but here's a thing - the cooling demand for workers is actually welcome news for the Federal Reserve, which is trying to curb inflation. For more on this, we're joined by NPR's Scott Horsley. Scott, what does this report tell us about the job market?
SCOTT HORSLEY, BYLINE: Well, it shows that September saw another solid month of job gains but not quite as strong as the month before. The economy added about 16% fewer jobs in September than it did in August. By most measures, this is still a pretty hot job market. But I guess you could say we've gone from a rolling boil to a simmer. And as you mentioned, that's a good thing as far as the Federal Reserve is concerned.
MARTINEZ: And why is that?
HORSLEY: The Fed's been worried that the job market has been running too hot, that there's more demand for workers than there are people to fill those jobs, and the resulting competition for workers has been pushing wages up unusually fast. Of course, rising wages is usually a good thing for workers, but it can also help to drive inflation. So the Fed's been looking to get a better balance between help-wanted signs and job applicants. We did get an encouraging signal earlier this week when a report came out showing that job openings had dropped by about 10% in August, even as the pace of hiring held pretty steady. Economist Nela Richardson, who's with the payroll processing company ADP, says that's kind of the sweet spot for the central bank.
NELA RICHARDSON: I think this is good news for the Federal Reserve that you are seeing some softening in early-stage demand but still continuation in hiring.
HORSLEY: We did see a little slowdown in wage growth last month. Average wages in September were up 5% from a year ago. That's compared to a 5.2% annual gain the month before.
MARTINEZ: That softening that Richardson is talking about, where do we see that?
HORSLEY: One area is manufacturing. Factories added 22,000 jobs in September, down from 27,000 in August and 37,000 in July. That slowdown is consistent with a new survey we got from factory managers earlier this week. It showed that they're a little less desperate to hire people than they had been. Tim Fiore, who oversees the survey for the Institute for Supply Management, says factory orders have started to slow down, and so managers are not sure they're going to need as many workers in the months to come.
TIM FIORE: I think we definitely have a slowdown here. And it's really hard to hire somebody this month and three, four months from now let them go. So, you know, people are being a lot more cautious.
HORSLEY: Fiore says he's not seeing layoffs in factories, but some manufacturers are imposing hiring freezes. And when people quit, they're not being replaced as quickly. On the services side of the economy, though, we're not seeing that kind of slowdown. They still saw big job gains last month in bars and restaurants. They added 60,000 workers. Health care also added 60,000 jobs.
MARTINEZ: Does this report at all foreshadow what could be ahead?
HORSLEY: You know, as of this summer, the U.S. had replaced all the jobs that it lost early in the pandemic. ADP's Richardson says any job growth from here on out is going to depend in part on how many more people come off the sidelines and start looking for work.
RICHARDSON: The more people who come back to the labor market, the more likely we'll see some loosening in hiring conditions and a continuation of these steady gains.
HORSLEY: You know, we saw a big influx of workers in August when nearly 800,000 people joined or rejoined the workforce. But today's report shows, unfortunately, that trend did not continue in September. In fact, 57,000 people dropped out of the workforce last month. That's why the unemployment rate fell to 3.5%, matching a half-century low.
MARTINEZ: NPR's Scott Horsley. Scott, thanks.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.